<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended November 26, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-8210
PAYLESS CASHWAYS, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-0945849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Pershing Square
2300 Main, P.O. Box 419466
Kansas City, Missouri 64141-0466
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 234-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, $.01 par value New York Stock Exchange
9-1/8% Senior Subordinated Notes due April 15, 2003 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES / X / NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Common Stock, par value $.01 per share, of the
registrant held by nonaffiliates of the registrant as of February 6, 1995, was
$376,697,477.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, outstanding as of February 6, 1995:
Voting -- 37,624,222 shares
Class A Non-Voting -- 2,250,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
November 26, 1994, are incorporated by reference into Part II. Portions of the
Annual Proxy Statement for the Annual Meeting of Shareholders to be held April
20, 1995, are incorporated by reference into Part III.
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PART I
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Item 1. BUSINESS.
GENERAL
Payless Cashways, Inc. ("Payless" or the "Company") is the fourth largest
retailer of building materials and home improvement products in the United
States as measured by sales. The Company operates 201 full-line retail stores
in 24 states located in the Midwest, Southwest, Pacific Coast, Rocky Mountain
and New England areas under the names of Payless Cashways Building Materials,
Furrow Building Materials, Lumberjack Building Materials, Hugh M. Woods Building
Materials, Knox Lumber and Somerville Lumber. Each full-line store is designed
as a one-stop source that provides customers with a complete selection of
quality products and services needed to build, improve, and maintain their home,
business, farm or ranch properties. The Company's merchandise assortment
includes approximately 24,000 items in the following categories: lumber and
building materials, millwork, tools, hardware, electrical and plumbing products,
paint, lighting, home decor, kitchens, decorative plumbing, heating, ventilating
and cooling (HVAC), and seasonal items. The Company believes that the
combination of a full-line lumberyard, a broad product mix, a high level of in-
store customer assistance concerning product usage and installation, and
competitive prices distinguishes Payless from many competitors.
The Company's primary customers include project oriented do-it-yourselfers
and professionals. Project oriented do-it-yourselfers ("DIY'ers") are those
that engage in more frequent and complex repair or improvement projects and
typically spend in excess of $1,000 annually on home improvement products.
Professionals ("Pros") include remodelers, residential contractors, and
specialty tradesmen along with enterprises which purchase large quantities of
building materials for facility maintenance, such as property management firms,
commercial and industrial accounts, and government institutions. Due to its
product mix (especially the advantage provided by its full-line lumberyard) and
customer service approach, the Company believes that it is well positioned to
increase its penetration of these segments of the building materials and home
improvement products market. Payless also serves the needs of the moderate and
light DIY'er.
INDUSTRY OVERVIEW
Building materials and home improvement products are sold through two
distribution channels -- retail units and wholesale supply outlets. In the
latest study prepared by DRI/McGraw-Hill in October 1994, the retail channel of
the industry was estimated to be $125.8 billion in 1994, and is forecast to be
$162.5 billion by 1999. The Company estimates the wholesale supply channel for
products sold by the Company represented approximately $118 billion in 1994,
based on the most recently available unpublished data from the U.S. Department
of Commerce for 1994.
Retail distribution channels include neighborhood hardware stores, home
centers, warehouse stores, specialty stores (such as paint and tile stores) and
lumberyards. Although the industry remains highly fragmented, the retail
distribution channel has consolidated somewhat in the last ten years,
particularly in metropolitan areas. Warehouse, home center and building
materials chains have grown while the number of local independent merchants has
declined. The top 25 chains accounted for approximately 29% of industry sales
in 1993.
In general terms, customers can be characterized as either retail-oriented
(consumer) or wholesale-oriented (professional). The consumer segments, as
defined by the Company, include light DIY'ers who spend less than $200 annually
on building materials and home improvements products; moderate DIY'ers who make
annual purchases of $200 to $1,000; and project oriented DIY'ers who make annual
purchases in excess of $1,000. Purchases by professionals tend to be larger in
volume and require specialized merchandise assortments, competitive market
pricing, superior lumber quality, telephone order placement, commercial credit
and job-site delivery.
BUSINESS STRATEGY
Objectives
The Company's principal objectives are to (i) increase its market share in
the Pro and project oriented DIY segments through its existing stores, (ii)
acquire new customers through the implementation of a more aggressive new store
expansion program and (iii) achieve a leading market position in Mexico through
a joint venture, as discussed below.
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The Company believes that demographic and lifestyle factors (such as the
aging baby boomers, the increase in home-centered activities and the aging
housing stock) will result in a growing demand for its products. The Company
also believes that the rate of growth in the professional segment will continue
to exceed the consumer or DIY segment due to the lack of discretionary time of
many homeowners and the reluctance of an aging homeowner population to engage in
major repair or remodeling projects. As a national chain, the Company believes
it enjoys economies of scale, buying power and professional management that the
traditional outlets supplying the professional commonly do not have. These
advantages, along with the broad product assortment and full service package,
make the Company well suited to supply the professional's needs.
Based on the Company's 1994 market data from a sample of stores which the
Company believes are representative of its stores, the Company's business mix as
a percentage of sales was approximately 50% DIY and 50% Pro. Approximately 66%
of the DIY sales were derived from the project oriented DIY'er and the remainder
from the light and medium DIY'er.
Professional Strategy
The Company is particularly well-suited to serve the needs of professional
customers and offers services not provided by others in the industry.
A sales and service staff of approximately 1,700 are dedicated to serving
the professional customer. Professional sales representatives have assigned
customers for whom they provide service tailored to the customers' business
needs. Sales representatives call on professional customers at their places of
business and job sites. The sales representatives have detailed information
regarding account purchases and the profitability of their accounts. The
Company believes that this level of customer service and type of sales
management system is effective in increasing purchases and improving
profitability from current professional customers as well as building customer
loyalty.
Each full line store has a separate commercial sales area for the
professional customer to use. These offices allow private discussions between
the customer and their sales representative, speed the purchase process for the
Pro and offer small amenities to these customers such as coffee, ice, and phone
access. The Company has 63 drive-through format lumberyards which significantly
reduce the time required to complete a purchase and meet the Pros' requirement
for fast and efficient service. An additional 32 stores will be converted to
this drive-through format in 1995.
The Company's merchandise assortment is particularly appealing to the Pro.
Preferred brands, commercial grade items, contractor packs and extensive special
order capabilities ensure that the Company meets the broad product requirements
of this customer segment. The merchandise assortment includes products
previously available to customers only through authorized wholesale
distribution. The Company has negotiated purchase arrangements with key lumber
suppliers which ensure a consistent source of high quality lumber.
The Company offers a number of special services which are tailored to meet
the needs of various professional and commercial customer segments. Delivery
services include next day job-site delivery and roof top delivery. Credit
programs include a 30 day revolving account (Pro Project Card) and a full-
service commercial credit program which provides job based billing and other
more sophisticated credit features. Additionally, all stores offer automated
blueprint estimating services featuring rapid turnaround. This estimating
system is unique in that it utilizes a digitizer which ensures accuracy in the
measurement process and it is fully integrated into the store's point of sale
("POS") system. The Company also supports the Pro with joint marketing programs
such as its contractor referral data base.
The Company has a national accounts program which targets businesses with
major facilities or multiple locations and which utilize large amounts of
building materials and improvement products for facility maintenance. The
Company currently has 103 national accounts representing 3,629 individual
properties for which it provides repair and maintenance products.
Property management firms are provided a specialized set of services
through the Company's OPTIC program (On Property Total Inventory Control). This
program offers on-site product replenishment services to over 1,800 large
property owners and managers.
DIY Strategy
The Company's strategy to increase market share with the DIY customer
focuses primarily on the project oriented DIY'er. In fiscal 1994, sales to
project oriented DIY'ers represented approximately 66% of the sales to DIY'ers
while
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accounting for approximately 50% of the DIY'er transactions based on Company
market data from a sample of stores which the Company believes are
representative of its stores.
Quality products, a wide assortment, in-stock position, competitive pricing
and service assistance on more complex projects are important to the project
oriented DIY customer and have been the foundation upon which the Company has
built its business with these customers. The Company continues to upgrade its
assortment and displays in product categories which represent a significant
portion of the purchases by project oriented DIY'ers. These upgraded product
categories include paint, decorative plumbing, kitchen cabinets, power tools,
builders' hardware, millwork, and home decor.
Project oriented DIY'ers are similar to the Pro customer with regard to the
brands preferred and the importance of stocking high quality lumber. The
Company believes that many of the steps it has taken to serve the Pro customer
have also had a positive impact on sales to the project oriented DIY customer.
Several additional initiatives support the continued growth and
profitability of DIY sales. These include the following:
. Improved Customer Service. The Company has an employee recognition and
reward program and incentive compensation plans for nonmanagement employees to
promote outstanding customer service. Improved customer service is intended to
increase the average sales ticket size and the number of repeat purchasers.
. Design Services. The Company has also expanded the project design
services offered to its customers. A computer design system for kitchens, baths
and closet systems is located in each of the store's kitchen design centers.
Design Works, a building packages design system focusing initially on decks,
garages and post-frame buildings, is operating in all stores. Both of these
systems are integrated into the store's POS system, providing on-line pricing,
confirmation of inventory availability and immediate conversion of an estimate
into an order.
. Lumberyard Improvements. Project oriented DIY'ers are frequent
purchasers of the lumber and building material products stocked in the
lumberyard. The drive-through format lumberyards mentioned earlier facilitate
the DIY customer purchases of lumberyard products, saving the customer time and
increasing customer satisfaction. The Company believes this lumberyard format
positions it for increased future sales.
. Special Events. The Company offers the project oriented DIY'er special
buying opportunities through after-hours sales and other preferred customer
programs.
Expansion Strategy
An important part of the Company's current business strategy is an
expansion program, which included seven additional full-line stores in 1994 and
will include eight to ten new stores annually thereafter in new and existing
markets.
A new store design was introduced in 1994. The first facility
incorporating this design was opened in the summer in Lincoln, Nebraska. Other
prototype units opened in Lake Jackson, Texas and Bloomington, Indiana in the
fourth quarter. The design emphasis was on creating a shopping environment that
was clearly focused and easy for the customer to shop, that emphasized product
information and project support and that made each visit to the store productive
for the customer. The facilities are located on prime retail sites which
average ten acres. The total amount of covered space is approximately 137,000
square feet. This includes a 60,000 square foot retail showroom, an attached
17,000 square foot warehouse, and 60,000 square feet of covered product in the
182,000 square foot drive through lumberyard. In these lumberyards customers
may drive in, select their merchandise, and pay from their cars as they exit.
They are also welcome to shop the retail showroom and pay inside. Flexibility
and meeting a variety of customer preferences are key benefits of the design.
These units are designed to enhance the shopping experience with wider aisles,
multiple customer service centers facilitating design services and "educaps" in
the center aisle which provide customers with information on product
application.
The Company's expansion program is designed to broaden the Company's
penetration into new and existing markets. Although existing market expansion
may initially adversely affect sales at existing stores, the Company believes
that expansion into existing markets will increase market penetration by
attracting new customers to more convenient locations and allow the Company to
increase operating margins by achieving economies of scale in certain areas such
as management supervision, advertising and distribution. Expansion in the
Company's current market is also less uncertain because of its experience in
those markets with existing store locations. Typically, the Company plans to
enter new markets with multiple store locations.
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The Company expects that the additional stores will generally be located in
trade areas which have high housing density and above-average household income.
The Company estimates that the time required to open a new full-line store,
from site selection to opening the doors for business is approximately 13 to 24
months. The Company also estimates that capital investment for new stores will
average $6.5 to $8.5 million per store, with land costs being the greatest
variable, and that the initial net inventory investment will average $1.9
million per store.
Also, at the end of 1993, the Company announced its first international
expansion into Mexico through the creation of a joint venture with a Mexican
company, Alfa, S.A. de C.V., in which the Company is a 49% investor. The joint
venture, Total Home de Mexico, S.A. de C.V., plans to build a chain of as many
as thirty stores over the next several years. The first Total Home store opened
in December, 1994 in Monterrey, Mexico. The stores will offer customers, both
DIYer's and Pros, a complete line of building materials and home improvement
products and services in a customized retail setting.
MERCHANDISING AND MARKETING
Payless' full-line stores sell a broad range of building material products
totaling approximately 24,000 items, many of which are nationally advertised
brand-name items. Payless categorizes its product offerings into the classes
described below:
Lumberyard - Dimensional lumber, plywood, sidings, roofing materials,
fencing materials, windows, doors and moldings, insulation materials and
drywall.
Hardware - Electrical wire and wiring materials, plumbing materials,
power and hand tools, paint and painting supplies, lawn and garden
products, door locks, fasteners, and heating and cooling products.
Showroom - Interior and exterior lighting, bathroom fixtures and
vanities, kitchen cabinets, flooring, panelling, wallcoverings and ceiling
tiles.
During the last three fiscal years, the three product classifications
accounted for the following percentages of Payless' sales:
<TABLE>
<CAPTION>
1992 1993 1994
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<S> <C> <C> <C>
Lumberyard 46% 48% 49%
Hardware 34 33 34
Showroom 20 19 17
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100% 100% 100%
</TABLE>
Payless addresses its primary target customers through a mix of newspaper,
direct mail, radio and television advertising methods. The primary media
vehicle is newspaper advertisements, both freestanding inserts and run-of-press
ads. Television and radio advertising are used in support of major promotional
events. Additionally, the Company participates in or hosts a variety of home
shows, customer hospitality events, contractor product shows and national trade
association shows and conferences. During fiscal 1994, the Company's
expenditures (net of vendor allowances) on all forms of advertising totaled
approximately $33 million or 1.2% of sales.
The Company utilizes data base marketing techniques to increase the
effectiveness of its marketing programs. The data base allows the Company to
track purchases of individual customers at the stock keeping unit ("SKU") level,
if desired. This purchase history data is used in targeted marketing campaigns
and to develop distinct customer profiles for various product categories. In
addition, the Company conducts its own market research, including customer
intercepts, phone surveys and customer focus groups.
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STORE LOCATIONS
The Company's 201 full-line stores are located in the following states:
No. of Stores No. of Stores
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Arizona ........... 8 Missouri ........... 10
Arkansas .......... 1 Montana ............ 1
California ........ 16 Nebraska ........... 5
Colorado .......... 18 Nevada ............. 4
Illinois .......... 6 New Hampshire ...... 2
Indiana ........... 17 New Mexico ......... 3
Iowa .............. 10 Ohio ............... 12
Kansas ............ 10 Oklahoma ........... 8
Kentucky .......... 5 Oregon ............. 2
Louisiana ......... 1 Rhode Island ....... 1
Massachusetts ..... 7 Tennessee .......... 3
Minnesota ......... 9 Texas .............. 42
Payless owns 174 of its full-line store facilities and 162 of the 201 sites
on which such stores are located. The remaining 27 stores and 39 sites are
leased. Mortgages or deeds of trust on 141 store parcels secure existing
indebtedness.
Payless has generally located retail stores adjacent to residential areas
of major metropolitan cities or adjacent to major arteries in smaller
communities which are convenient to the DIY and Pro customer. Operation of
multiple stores in a trade area permits more effective supervision of stores and
provides certain economies in distribution expenses and advertising costs. Each
of Payless' 201 existing stores has an average of approximately 31,000 square
feet of indoor display space, 53,000 square feet of warehouse space and 152,000
square feet of lumberyard. The average Payless store occupies approximately
eight acres of land. The prototype stores currently being built average
approximately 60,000 square feet of retail selling space with an attached 17,000
square foot warehouse and a 182,000 square foot lumberyard on ten acres of land.
An average Payless store currently carries approximately $1.8 million of
inventory, and during fiscal 1994 sales at Payless stores averaged approximately
$13.7 million per store.
During fiscal 1994, seven full-line stores were opened and the Company
closed one full-line store. During fiscal 1993, one full-line store was opened.
No full-line stores were opened in fiscal 1991 or 1992.
STORE MANAGEMENT AND PERSONNEL
During 1994, Payless reorganized the coordination of its 201 full-line-
store operations. The structure includes 99 Group Store Directors and Store
Managers reporting to one of six Regional Vice Presidents. Supervision and
control over the individual stores are facilitated by means of detailed
operating reports. All of Payless' Group Store Directors, Store Managers, and
Regional Vice Presidents have been promoted from within Payless or from within
the stores Payless has acquired.
To obtain candidates for store supervisory and management positions,
Payless recruits both recent college graduates and persons with business
experience. These employees are placed in a formal training program
administered by Payless. In addition, Payless maintains an ongoing training
program for existing store personnel. Group Store Directors and Store Managers
typically have more than ten years of experience with the Company.
The stores utilize a departmental management structure designed to provide
a superior level of service to customers. Sales associates are trained in
product knowledge, selling skills and systems and procedures. Formal classroom
training sessions are supplemented with product clinics, rallies and special
assignments. Department sales managers typically have more than five years of
experience with the Company.
The Company utilizes a sales tracking system at the store level to set
individual sales and gross margin goals for each of its sales associates.
Information is available on a weekly basis to monitor performance against those
goals.
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Incentive compensation systems reward employees for store performance above
goal. In addition to management personnel, all sales and support personnel in
the retail stores participate in incentive compensation programs. In fiscal
1994, the Company paid $5.6 million in incentive compensation to its
nonmanagement store personnel. Group Store Directors and Store Managers can
earn in excess of 40% of base salary in incentive compensation. The Company
paid approximately $11.6 million in incentive compensation to its store
management personnel for fiscal 1994. The Company believes that its incentive
compensation systems are key to employee performance and motivation.
INFORMATION SYSTEMS
The Company has invested substantial time, effort and dollars insuring that
technology and information are used to the maximum benefit throughout its entire
enterprise. In-store-processors based upon current technology standards are
integral to management of the stores and support customer services with programs
designed to enhance the shopping experience. A satellite-based wide-area-
network (WAN) linking each of the various Company facilities provides for daily
transmission of detail transaction data including SKU-level sales from point-of-
sale terminals equipped with the latest in scanning technology. This network
also serves to provide automatic check authorization and on-line credit card
processing. In addition to sales support and data gathering, the Company has
built sophisticated merchandising, inventory management, distribution and
promotional systems which are utilized at the corporate office to manage the
purchasing, movement and marketing of product lines.
DISTRIBUTION AND SUPPLIERS
The Company operates a total of eight distribution centers and three
manufacturing locations. The distribution centers maintain inventories and tag
and ship product to stores on a weekly basis. Of the eight, two (Sedalia,
Missouri and Bellingham, Massachusetts) handle small-sized, conveyable, high
value items such as hardware, plumbing and electrical supplies, and hand tools.
The other six distribution centers handle commodity products and bulky
manufactured products such as tubs, paneling and ceiling tile. The
manufacturing locations assemble pre-hung doors and customized windows.
In fiscal 1994, 53% of merchandise was channeled through the distribution
centers for redistribution to individual stores. This benefits the Company in
the areas of product costs, in-stock positions and inventory turnover.
The Sedalia Distribution Center commenced operations in April 1988 and now
serves 161 stores as well as the Total Home store in Mexico. The 495,000 square
foot facility utilizes computerized receiving, storage and selection technology.
The Bellingham Distribution Center was opened in May 1989 with similar
automation. The facility has 453,000 square feet and serves the Somerville
Lumber stores. Excluding the Sedalia and Bellingham operations, the Company's
regional distribution centers average 18 acres with 154,000 square feet of
warehouse space, operating with manual storage and selection systems. In
addition, the Company uses third-party operations for specialized needs.
Payless purchases substantially all of its merchandise from approximately
3,500 suppliers, no one of which accounted for more than 5% of the Company's
purchases during fiscal 1994.
Credit
The Company offers credit to both its DIY and Pro customers. Purchases
under national credit cards and the Company's private-label credit card program
as a percentage of sales represented 26.2% in fiscal 1994, 25.1% in fiscal 1993,
and 25.6% in fiscal 1992. Purchases under the Company's private label
commercial credit program as a percentage of sales represented 25.1% in fiscal
1994, 22.1% in fiscal 1993, and 16.7% in fiscal 1992. The Company's private-
label credit card program and commercial credit program are administered by a
large finance and asset management company. Accounts written off (net of
recoveries) under the commercial credit program in fiscal 1994 were
approximately $4.0 million or .6% of net commercial credit sales. The cost of
the private label credit card program represents a fixed percentage fee of
charge sales. The fees on the commercial credit program consist of
administrative fees which are primarily tied to commercial credit sales and fees
for accounts written off, which are substantially all absorbed by the Company.
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COMPETITION
The business of Payless is highly competitive. Payless encounters
competition from national and regional chains, including those with a warehouse
format, and from local independent wholesalers, supply houses and distributors.
Certain of its competitors are larger in terms of capital and sales volume and
have been operating longer than Payless in particular areas. Although Payless'
competition varies by geographical area, Payless believes that it generally has
a favorable competitive position as a result of its full-line lumberyard, broad
product mix, customer service, product availability and price. As a result of
the Company's shift in marketing focus to the market for professional customers,
the Company competes with local independent lumberyards, independent
wholesalers, supply houses and distributors who market primarily to commercial
and professional users.
EMPLOYEES
At November 26, 1994, Payless employed approximately 18,400 persons,
approximately 27% of whom were part-time, although the number of employees may
fluctuate seasonally. Payless believes its employee relations are satisfactory.
Payless' employees are primarily nonunion with less than 2% being represented by
a union.
A substantial portion of the administrative, purchasing, advertising and
accounting functions are centralized at Payless' headquarters in Kansas City,
Missouri.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name and age of all executive officers
of Payless and their present positions and recent business experience. There is
no family relationship among Payless' current directors and executive officers.
<TABLE>
<CAPTION>
Principal Occupation and
Name Age Five-Year Employment History
- ---- --- ----------------------------
<S> <C> <C>
David Stanley ............... 59 Chairman of the Board and Chief Executive
First elected a director: Officer of Payless since August 1986; and
1969 currently a director of Piper Jaffray
Companies, Inc.,1969 Digi International,
Inc. and Best Buy Co., Inc. Mr. Stanley
is a member of the Corporate Governance
and Nominating Committee of Payless'
Board of Directors.
Susan M. Stanton ............ 46 President and Chief Operating Officer of
First elected a director: Payless since November 1993; Senior
1993 Vice President - Merchandising of Payless
from October 1989 to November 19931993.
Ms. Stanton is a member of the Corporate
Governance and Nominating Committee of
Payless' Board of Directors.
Gerald M. Buchen ............ 39 Senior Vice President - Store Operations
of Payless since November 1993; and Vice
President - Merchandising/Lumberyard of
Payless from August 1988 to November
1993.
Ronald H. Butler ............ 45 Senior Vice President - Merchandising of
Payless since November 1993; Senior Vice
President - Store Operations of Payless
from September 1991 to November 1993;
Vice President, Marketing/Merchandising
of 84 Lumber Company from August 1990 to
September 1991; and Principal of Alabama
Holding Company from September 1988 to
August 1990.
Linda J. French ............. 47 Senior Vice President - General
Counsel/Secretary of Payless since
October 1991; and Vice President -
General Counsel/Secretary of Payless from
April 1986 to October 1991.
E.J. Holland, Jr. ........... 51 Senior Vice President - Human Resources
of Payless since June 1992; and Partner
of the law firm Spencer Fane Britt &
Browne from January 1974 to June 1992.
<PAGE> 9
Stephen A. Lightstone ....... 49 Senior Vice President - Finance/Treasurer
and Chief Financial Officer of Payless
since February 1988.
Richard E. Nawrot ........... 47 Senior Vice President - Information
Systems of Payless since September 1991;
Vice President of Management Information
Services of Jamesway Corporation from
February 1991 to September 1991; and
Senior Vice President - MIS and Chief
Information Officer of Ames Department
Stores, Inc. from July 1988 to February
1991.
Richard G. Luse ............. 47 Vice President - Controller of Payless
since February 1988.
</TABLE>
Item 2. PROPERTIES.
Payless owns 174 of its full-line store facilities and 162 of the 201 sites
on which such stores are located. The remaining 27 facilities and 39 sites are
leased. The leases provide for various terms. Mortgages or deeds of trust on
141 store parcels secure existing indebtedness.
Six of the Company's eight distribution centers are owned and, of the
remaining two, one is leased for land only and the facility and land are leased
for the other. Mortgages or deeds of trust on four distribution center parcels
secure existing indebtedness.
Payless leases its corporate office in Kansas City, Missouri, under a lease
expiring on November 30, 2002. The administrative offices occupy several floors
(approximately 204,000 square feet) of a multi-story building.
See also "Expansion Strategy", "Store Locations" and "Distribution and
Suppliers" in Item 1, above.
Item 3. LEGAL PROCEEDINGS.
There are presently no material legal proceedings to which Payless or its
subsidiary is a party or of which any of their property is the subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
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Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Payless Common Stock has been traded on the New York Stock Exchange (ticker
symbol PCS) since March 9, 1993. Prior to that date there was no established
trading market for Payless' Common Stock. Therefore, high and low bid
quotations are only available from that date.
<TABLE>
<CAPTION>
1994 1993
------------- ------------
Price range of common stock High Low High Low
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter 19-5/8 12-7/8 -- --
Second Quarter 19-1/4 13-1/2 14-7/8 12-3/8
Third Quarter 15-1/4 10-5/8 14-1/4 11-5/8
Fourth Quarter 12-1/2 8-1/4 13-7/8 11
</TABLE>
At February 6, 1995, there were 899 holders of record of Payless' Voting
Common Stock and one holder of Class A Non-Voting Common Stock. No cash
dividends have been declared on the Common Stock since 1988. Certain of
Payless' debt instruments contain restrictions on the declaration and payment of
dividends on, or the making of any distribution to the holders of, or the
acquisition of, any shares of Common Stock or Cumulative Preferred Stock.
<PAGE> 10
Item 6. SELECTED FINANCIAL DATA.
The Five-Year Financial Summary, page 30 of the Annual Report to
Shareholders for the fiscal year ended November 26, 1994, is incorporated herein
by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of the Financial Condition and Results
of Operations on pages 6 through 9 of the Annual Report to Shareholders for the
fiscal year ended November 26, 1994, is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and independent auditors' report included on pages
11 through 28 of the Annual Report to Shareholders for the fiscal year ended
November 26, 1994, are incorporated herein by reference.
The Quarterly Consolidated Statements of Operations on pages 4 and 5 of the
Annual Report to Shareholders for the fiscal year ended November 26, 1994, are
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item with respect to directors and
compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated herein by reference to the Registrant's Proxy Statement for the
1995 Annual Meeting of Shareholders, dated February 24, 1995, to be filed
pursuant to Regulation 14A. The required information as to executive officers
is set forth in Part I hereof.
Item 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the 1995 Annual Meeting of Shareholders,
dated February 24, 1995, to be filed pursuant to Regulation 14A.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the 1995 Annual Meeting of Shareholders,
dated February 24, 1995, to be filed pursuant to Regulation 14A.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the 1995 Annual Meeting of Shareholders,
dated February 25, 1995, to be filed pursuant to Regulation 14A.
<PAGE> 11
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Document list.
1. and 2. The response to this portion of Item 14 is submitted as a
separate section of this report.
3. List of exhibits.
3.1 Restated Articles of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 filed as part of Amendment No. 1 to
Registration Statement No. 33-58008 on Form S-2 on March 8,
1993).
3.2 By-laws of the Company (incorporated by reference to Exhibit
3.1 filed as part of Payless' Quarterly Report on Form 10-Q for
the quarter ended August 27, 1994).
4.0 Long-term debt instruments of the Registrant in amounts not
exceeding ten percent (10%) of the total assets of the
Registrant and its subsidiary on a consolidated basis will be
furnished to the Commission upon request.
4.1 1994 Credit Agreement, dated as of November 18, 1994, among
Payless, the Banks listed on the signature pages thereof and
Canadian Imperial Bank of Commerce, New York Agency, as
Administrative Agent.
4.2 Indenture dated as of April 20, 1993 by and between Payless and
United States Trust Company of New York, pursuant to which the
9 1/8% Senior Subordinated Notes of Payless due April 15, 2003
were issued (incorporated by reference to Exhibit 4.2 filed as
part of Payless' Quarterly Report on Form 10-Q for the quarter
ended May 29, 1993).
4.3 Amended and Restated Warrant Agreement, dated as of January 1,
1993, to Warrant Agreement dated as of November 1, 1988,
between Payless and Bank of New York (incorporated by reference
to Exhibit 4.1(b) of Payless' Annual Report on Form 10-K for
the fiscal year ended November 28, 1992, as amended by Form 8,
dated February 1, 1993).
4.4(a) Loan Agreement dated June 20, 1989, by and among Payless
Cashways, Inc., Knox Home Centers, Inc., Somerville Lumber and
Supply Co., Inc., and The Prudential Insurance Company of
America (incorporated by reference to Exhibit 4.2 filed as part
of Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(b) Guaranty effective June 20, 1989, given by Somerville Lumber
and Supply Co., Inc. to The Prudential Insurance Company of
America, guaranteeing certain indebtedness of Payless Cashways,
Inc. (incorporated by reference to Exhibit 4.7 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(c) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche A (AR, MA, NH,
RI) (incorporated by reference to Exhibit 4.10 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(d) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche A (LA)
(incorporated by reference to Exhibit 4.11 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(e) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche B (MN)
(incorporated by reference to Exhibit 4.12 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(f) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche B (MT)
(incorporated by reference to Exhibit 4.13 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
<PAGE> 12
4.4(g) Promissory Note dated June 20, 1989 from Payless to the
Prudential Insurance Company of America, Tranche B (ND)
(incorporated by reference to Exhibit 4.14 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(h) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche B (NV)
(incorporated by reference to Exhibit 4.15 filed a part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(i) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche B (AZ, CA)
(incorporated by reference to Exhibit 4.16 filed as part of
Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(j) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche C (IN, KY, NM,
OH, TN)(incorporated by reference to Exhibit 4.17 filed as part
of Payless' Quarterly Report on Form 10-Q for the quarter ended
May 27, 1989).
4.4(k) Promissory Note dated June 20, 1989 from Payless to The
Prudential Insurance Company of America, Tranche D (CO, IA, IL,
KS, NE, MO, TX, OR, OK) (incorporated by reference to Exhibit
4.18 filed as part of Payless' Quarterly Report on Form 10-Q
for the quarter ended May 27, 1989).
4.4(l) Form of Deed of Trust, Mortgage and Security Agreement
effective June 20, 1989, given to The Prudential Insurance
Company of America (incorporated by reference to Exhibit 4.19
filed as part of Payless' Quarterly Report on Form 10-Q for the
quarter ended May 27, 1989).
4.4(m) Form of Deed of Trust, Security Agreement and Assignment of
Leases dated June 20, 1989 given to Morgan Bank (Delaware), as
Collateral Agent (incorporated by reference to Exhibit 4.20
filed as part of Payless' Quarterly Report on Form 10-Q for the
quarter ended May 27, 1989).
4.4(n) First Modification Agreement dated as of October 18, 1991, by
and among Payless, Knox, Somerville and The Prudential
Insurance Company of America (incorporated by reference to
Exhibit 4.9(r) filed as part of Payless' Annual Report on Form
10-K for fiscal year ended November 30, 1991).
4.4(o) Second Modification Agreement dated as of December 17, 1991, by
and among Payless, Knox, Somerville and The Prudential
Insurance Company of America (incorporated by reference to
Exhibit 4.9(s) filed as part of Payless' Annual Report on Form
10-K for fiscal year ended November 30, 1991).
4.4(p) Third Modification Agreement dated as of December 31, 1991, by
and among Payless, Knox, Somerville and the Prudential
Insurance Company of America (incorporated by reference to
Exhibit 4.9(t) filed as part of Payless' Annual Report on Form
10-K for fiscal year ended November 30, 1991).
4.4(q) Fourth Modification Agreement dated as of March 8, 1993, by and
among Payless, Somerville and The Prudential Insurance Company
of America (incorporated by reference to exhibit 4.6(v) filed
as part of Amendment No. 1 to Registration Statement No. 33
-58008 on Form S-2 on March 8, 1993).
4.4(r) Letter dated March 12, 1993 modifying Fourth Modification
Agreement dated as of March 8, 1993 by and among Payless,
Somerville and The Prudential Insurance Company of America
(incorporated by reference to Exhibit 4.5(w) filed as part of
Registration Statement No. 33-59854 on Form S-2 on March 19,
1993).
4.5 Borrower Security Agreement, dated November 18, 1994, made by
Payless for the benefit of Canadian Imperial Bank of Commerce,
New York Agency, as Collateral Agent, and the banks and other
financial institutions party to the 1994 Credit Agreement.
<PAGE> 13
4.6 Subsidiary Guarantee, dated November 18, 1994 made by
Somerville Lumber and Supply Co., Inc. for the benefit of
Canadian Imperial Bank of Commerce, New York Agency, as
Collateral Agent, and the banks and other financial
institutions party to the 1994 Credit Agreement.
4.7 Subsidiary Security Agreement, dated November 18, 1994, made by
Somerville Lumber and Supply Co., Inc. in favor of Canadian
Imperial Bank of Commerce, New York Agency, as Collateral
Agent, for the benefit of the banks and other financial
institutions party to the 1994 Credit Agreement.
4.8 Stock Pledge Agreement, dated November 18, 1994, made by
Payless for the benefit of Canadian Imperial Bank of Commerce,
New York Agency, as Collateral Agent, and the banks and other
financial institutions party to the 1994 Credit Agreement.
4.9 Inter-Facility Agreement, dated November 18, 1994, among
Canadian Imperial Bank of Commerce, New York Agency, The Bank
of Nova Scotia, Nationsbank of Texas, N.A., Bank of America
National Trust and Savings Association, Commerce Bank, N.A.,
Payless and Somerville
10.1 Supply Agreement dated as of August 4, 1988, between Masco
Corporation and Payless (incorporated by reference to Exhibit
10.1 filed as part of Registration Statement No.33-23893 on
Form S-1 filed August 19, 1988).
10.2 Indemnification Agreement (incorporated by reference to Exhibit
10.2 filed as part of Amendment No. 2 to Registration Statement
No. 33-49772 filed August 26, 1992).
10.3(a)* Payless Cashways, Inc. Corporate Management Incentive
Compensation Program, dated as of December 1991 (incorporated
by reference to Exhibit 10.2 filed as part of Payless'
Quarterly Report on Form 10-Q for the quarter ended May 30,
1992).
10.3(b)* First Amendment to Payless Cashways, Inc. Corporate Management
Incentive Compensation Program, dated as of February 2, 1995.
10.4(a)* Employment Agreement dated as of December 1, 1988 between
Payless and David Stanley (incorporated by reference to Exhibit
10.13 filed as part of Post Effective Amendment No. 1 on Form
S-2 to Form S-1 Registration Statement No. 33-23893 filed
August 8, 1989).
10.4(b)* Amendment dated March 10, 1992 to Employment Agreement between
Payless and David Stanley, (incorporated by reference to
Exhibit 10.2 filed as part of Payless' Quarterly Report on Form
10-Q for the quarter ended February 29, 1992).
10.4(c)* Amendment dated June 23, 1993 to Employment Agreement between
Payless and David Stanley (incorporated by reference to Exhibit
10.2 filed as part of Payless' Quarterly Report on Form 10-Q
for the quarter ended May 29, 1993).
10.5* Employment Agreement dated as of February 8, 1993 between
Payless and Susan M. Stanton (incorporated by reference to
Exhibit 10.26 filed as part of Registration Statement No. 33
-58008 on Form S-2 on February 8, 1993).
10.6* Employment Agreement dated as of February 8, 1993 between
Payless and Ronald H. Butler (incorporated by reference to
Exhibit 10.24 filed as part of Registration Statement No. 33
-58008 on Form S-2 on February 8, 1993).
10.7* Employment Agreement dated as of February 8, 1993 between
Payless and Stephen A. Lightstone (incorporated by reference to
Exhibit 10.25 filed as part of Registration Statement No. 33
-58008 on Form S-2 on February 8, 1993).
10.8* Employment Agreement dated as of September 22, 1993 between
Payless and Larry Kunz (incorporated by reference to Exhibit
10.1 filed as part of Payless' Quarterly Report on Form 10-Q
for the quarter ended August 28, 1993).
<PAGE> 14
10.9* Retirement Agreement dated as of November 14, 1993 between
Payless and Harold Cohen (incorporated by reference to Exhibit
10.6(c) filed as part of Payless' Annual Report on Form 10-K
for the fiscal year ended November 27, 1993).
10.10(a)* Payless Cashways, Inc. Wealth-Op Deferred Compensation Plan
(incorporated by reference to Exhibit 10.8 filed as part of
Post-Effective Amendment No. 7 to Registration Statement No.
33-23893 on Form S-2 filed May 26, 1992).
10.10(b)* Amendment to Payless' Wealth-Op Deferred Compensation Plan
(incorporated by reference to Exhibit 10.10(b) filed as part of
Payless' Annual Report on Form 10-K for the fiscal year ended
November 27, 1993).
10.11(a)* Payless Cashways, Inc. 1988 Deferred Compensation Plan
(incorporated by reference to Exhibit 10.11(a) filed as part of
Payless' Annual Report on Form 10-K for the fiscal year ended
November 27, 1993).
10.11(b)* Amendment to Payless' 1988 Deferred Compensation Plan
(incorporated by reference to Exhibit 10.11(b) filed as part of
Payless' Annual Report on Form 10-K for the fiscal year ended
November 27, 1993).
10.12(a)* Payless Cashways, Inc. Supplemental Death Benefit Plan
(incorporated by reference to Exhibit 10.12 filed as part of
Payless' Annual Report on Form 10-K for the fiscal year ended
November 27, 1993).
10.12(b)* First Amendment to the Payless Cashways, Inc. Supplemental
Death Benefit Plan, dated June 16, 1994 (incorporated by
reference to Exhibit 10.1 filed as part of Payless' Quarterly
Report on Form 10-Q for the quarter ended May 28, 1994).
10.13* Payless Cashways, Inc. Supplemental Disability Plan
(incorporated by reference to Exhibit 10.13 filed as part of
Payless' Annual Report on Form 10-K for the fiscal year ended
November 27, 1993).
10.14(a)* Payless Cashways, Inc. Supplemental Retirement Plan dated as of
January 1, 1988 (incorporated by reference to Exhibit 10.14(a)
filed as part of Payless' Annual Report on Form 10-K for the
fiscal year ended November 27, 1993).
10.14(b)* First Amendment, effective June 22, 1989, to the Payless
Cashways, Inc. Supplemental Retirement Plan dated as of January
1, 1988 (incorporated by reference to Exhibit 10.14(b) filed as
part of Payless' Annual Report on Form 10-K for the fiscal year
ended November 27, 1993).
10.14(c)* Second Amendment dated as of September 7, 1993, to the Payless
Cashways, Inc. Supplemental Retirement Plan dated as of January
1, 1988.
10.14(d)* Third Amendment dated as of August 31, 1994, to the Payless
Cashways, Inc. Supplemental Retirement Plan dated as of January
1, 1988 (incorporated by reference to Exhibit 10.1(a) filed as
part of Payless' Quarterly Report on Form 10-Q for the quarter
ended August 27, 1994).
10.14(e)* Agreement for Supplemental Retirement Benefits between Payless
and David Stanley as of the 31st day of August, 1994, effective
date of participation in the Supplemental Retirement Plan of
April 15, 1980 (incorporated by reference to Exhibit 10.1(b)
filed as part of Payless' Quarterly Report on Form 10-Q for the
quarter ended August 27, 1994).
10.15(a) Registration Rights Agreement dated as of August 4, 1988 among
PCI Acquisition Corp. and certain of its shareholders
(incorporated by reference to Exhibit 10.15(a) filed as part of
Payless' Annual Report on Form 10-K for the fiscal year ended
November 27, 1993).
10.15(b) Agreement and Amendment dated as of November 11, 1988 to
Registration Rights Agreement dated as of August 4, 1988 among
Payless and certain of its shareholders (incorporated by
reference to Exhibit 10.15(b)filed as part of Payless' Annual
Report on Form 10-K for the fiscal year ended November 27,
1993).
<PAGE> 15
10.15(c) Addendum to Shareholders' Agreement and Registration Rights
Agreement dated February 22, 1989 by and among Payless and
certain of its shareholders (incorporated by reference to
Exhibit 10.15(c) filed as part of Payless' Annual Report on
Form 10-K for the fiscal year ended November 27, 1993).
10.16(a) Amended and Restated Shareholders' Agreement, dated as of
February 22, 1990, by and among PCI Acquisition Corp. and
certain of its shareholders (incorporated by reference to
Exhibit 10.47 filed as part of Post-Effective Amendment No. 3
to Registration Statement No. 33-23893 on Form S-2 filed March
23, 1990).
10.16(b) Amendment No. 1 dated as of March 18, 1991, to the Amended and
Restated Shareholders' Agreement dated as of February 22, 1990,
by and among Payless and certain of its shareholders
(incorporated by reference to Exhibit 10.43(b) filed as part of
Post-Effective Amendment No. 5 to Registration Statement No.
33-23893 on Form S-2 filed March 21, 1991).
10.17(a)* 1988 Payless Cashways, Inc. Employee Stock Plan (incorporated
by reference to Annex 1 filed as part of Registration Statement
No. 33-24368 on Form S-8 filed September 9, 1988).
10.17(b)* First Amendment to the 1988 Payless Cashways, Inc. Employee
Stock Plan, dated November 11, 1988 (incorporated by reference
to Exhibit 10.1(b) filed as part of Payless' Quarterly Report
on Form 10-Q for the quarter ended February 25, 1989).
10.17(c)* Second Amendment to the 1988 Payless Cashways, Inc. Employee
Stock Plan, dated February 22, 1989 (incorporated by reference
to Exhibit 10.1(c) filed as part of Payless' Quarterly Report
on Form 10-Q for the quarter ended February 25, 1989).
10.17(d)* Third Amendment to the 1988 Payless Cashways, Inc. Employee
Stock Plan, dated March 6, 1990 (incorporated by reference to
Exhibit 10.2 of Payless' Quarterly Report on Form 10-Q for the
quarter ended February 24, 1990).
10.17(e)* Form of Performance Stock Option Agreement pursuant to the 1988
Payless Cashways, Inc. Employee Stock Option Plan amended on
June 20, 1991 (incorporated by reference to Exhibit 10.21(e)
filed as part of Payless' Annual Report on Form 10-K for fiscal
year ended November 30, 1991).
10.17(f)* Amendment to the 1988 Payless Cashways, Inc. Employee Stock
Plan, dated as of May 1, 1992 (incorporated by reference to
Exhibit 10.26 filed as part of Post-Effective Amendment No. 7
to Form S-2 Registration Statement No. 33-23893 filed May 26,
1992).
10.18* Payless Cashways 1992 Incentive Stock Program (incorporated by
reference to Exhibit 10.24 filed as part of Amendment No. 2 to
Registration Statement No. 33-49772 on Form S-2 filed August
26, 1992).
10.19* Payless Cashways Director Option Plan (incorporated by
reference to Exhibit 10.23 filed as part of Registration
Statement No. 33-59854 on Form S-2 on March 19, 1993).
11.1 Computation of per share earnings.
13.1 Annual Report to Shareholders.
21.1 Subsidiary of the Registrant (incorporated by reference to
Exhibit 22.1 filed as part of Payless' Annual Report on Form
10-K for fiscal year ended November 30, 1991).
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial data schedule.
* Represents a management contract or a compensatory plan or arrangement.
<PAGE> 16
Copies of any or all Exhibits will be furnished upon written request and payment
of Payless' reasonable expenses in furnishing the Exhibits.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by the Registrant during the quarter
ended November 26, 1994.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a separate section
of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate section
of this report.
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Payless has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PAYLESS CASHWAYS, INC.
(Registrant)
By s/David Stanley
------------------------------------------
David Stanley, Principal Executive Officer
Dated: February 16, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Payless and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
====================== ============================= ==================
<S> <C> <C>
s/David Stanley
-------------------
David Stanley Chief Executive Officer and February 16, 1995
Chairman of the Board
(Principal Executive Officer)
s/Susan M. Stanton
-------------------
Susan M. Stanton President and Chief Operating February 16, 1995
Officer and Director
s/Ralph Strangis
-------------------
Ralph Strangis Lead Director February 16, 1995
s/Harold Cohen
-------------------
Harold Cohen Director February 16, 1995
s/Scott G. Fossel
-------------------
Scott G. Fossel Director February 16, 1995
s/William A. Hall
-------------------
William A. Hall Director February 16, 1995
s/Larry P. Kunz
-------------------
Larry P. Kunz Director February 16, 1995
s/George Latimer
-------------------
George Latimer Director February 16, 1995
s/Wayne B. Lyon
-------------------
Wayne B. Lyon Director February 16, 1995
s/Gary D. Rose
-------------------
Gary D. Rose Director February 16, 1995
s/John H. Weitnauer, Jr.
-------------------
John H. Weitnauer, Jr. Director February 16, 1995
s/Stephen A. Lightstone
-------------------
Stephen A. Lightstone Senior Vice President-Finance/ February 16, 1995
Treasurer and Chief Financial
Officer (Principal Financial
Officer and Principal
Accounting Officer)
</TABLE>
<PAGE> 18
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
EXHIBITS
(Exhibits included in Form 10-K filed with the Securities and
Exchange Commission are not reproduced here. See Item 14(a)3.)
YEAR ENDED NOVEMBER 26, 1994
PAYLESS CASHWAYS, INC., and subsidiary
KANSAS CITY, MISSOURI
<PAGE> 19
PAYLESS CASHWAYS, INC., and subsidiary
FORM 10-K--ITEM 14(a) (1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Payless Cashways, Inc.,
and subsidiary included in Payless' Annual Report to the Shareholders for the
year ended November 26, 1994, are incorporated by reference in Item 8:
Consolidated Balance Sheets--November 26, 1994 and November 27, 1993.
Consolidated Statements of Operations--fiscal years ended November 26,
1994, November 27, 1993, and November 28, 1992.
Consolidated Statements of Shareholders' Equity--fiscal years ended
November 26, 1994, November 27, 1993, and November 28, 1992.
Consolidated Statements of Cash Flows--fiscal years ended November 26,
1994, November 27, 1993, and November 28, 1992.
Notes to Consolidated Financial Statements.
The following financial statement schedules of Payless Cashways, Inc., and
subsidiary are included in Item 14(d):
VIII - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
<PAGE> 20
[KPMG Peat Marwick LLP Letterhead]
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Payless Cashways, Inc.:
Under date of January 9, 1995, we reported on the consolidated balance sheets of
Payless Cashways, Inc. and subsidiary as of November 26, 1994 and November 27,
1993, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the fiscal years in the three-year period
ended November 26, 1994, as contained in the 1994 annual report to shareholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the fiscal year 1994. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the accompanying index. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this consolidated financial statement
schedule based on our audits.
In our opinion, such a financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
s/KPMG Peat Marwick LLP
Kansas City, Missouri
January 9, 1995
<PAGE> 21
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
PAYLESS CASHWAYS, INC., and subsidiary
(In thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------
Balance at Charged to Balance at
beginning cost and end of
Description of period expenses Deductions period
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 26, 1994:
Reserve for Inventory Shrink
and Obsolescence ........... $18,252 $21,920 $23,511 $16,661
YEAR ENDED NOVEMBER 27, 1993:
Reserve for Inventory Shrink
and Obsolescence ........... $12,848 $23,948 $18,544 $18,252
YEAR ENDED NOVEMBER 28, 1992:
Reserve for Inventory Shrink
and Obsolescence ........... $13,937 $24,911 $26,000 $12,848
</TABLE>
<PAGE> 1
Exhibit 4.1
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of November 18, 1994, among PAYLESS
CASHWAYS, INC., an Iowa corporation (the "Borrower"), the banks and other
financial institutions parties hereto (together with their respective successors
and assigns, the "Banks"), CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY
(acting through one or more of its agencies, branches or affiliates, "CIBC"), as
Administrative Agent (in such capacity, together with any successor agent, the
"Administrative Agent") and as Collateral Agent (in such capacity, together with
any successor agent, the "Collateral Agent") and THE BANK OF NOVA SCOTIA,
NATIONSBANK OF TEXAS, N.A., and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Co-Agents (in such capacity, together with any successors and
assigns, the "Co-Agents").
W I T N E S S E T H :
WHEREAS, the Borrower is currently party to that certain Amended and
Restated Credit Agreement, dated as of March 8, 1993, by and among the Borrower,
certain banks and other financial institutions, CIBC in its capacities as
Administrative Agent and Collateral Agent, and certain other banks as the
Managing Agents and the Co-Agent (as amended to but excluding the date hereof,
the "Existing Credit Agreement");
WHEREAS, the Borrower intends to use the proceeds of the Loans (as
defined herein) (a) to refinance its indebtedness under the Existing Credit
Agreement and the Existing Standby Letter of Credit Agreement (the
"Refinancing"), (b) to pay fees and expenses related to the Refinancing and (c)
to finance the continuing operations of the Borrower and its Subsidiaries; and
WHEREAS, the Borrower has requested that letters of credit outstanding
under the Existing Standby Letter of Credit Agreement and the Existing Credit
Agreement on the date hereof be deemed to be Letters of Credit hereunder;
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have
the following meanings:
"Absolute Rate Money Market Loan Request" any Money Market Loan
Request requesting the Banks to make Money Market
<PAGE> 2
Loans at an absolute fixed rate for the term of the Money Market Loan.
"Adjusted London Interbank Offered Rate" applicable to each day during
any Interest Period means a rate per annum equal to the quotient obtained
(rounded upwards, if necessary, to the next higher 1/100 of 1%) by dividing (i)
the applicable LIBOR by (ii) 1.00 minus the Euro-Dollar Reserve Percentage in
effect for such day.
"Administrative Agent" has the meaning set forth in the first
paragraph of this Agreement.
"Affiliate" as applied to any Person means (x) any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person or (y) any other Person that owns or controls 5% or more of any
class of equity securities of that Person or any of its Affiliates. For the
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling," "controlled by," and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities or by contract or
otherwise.
"Aggregate Outstanding Revolving Extensions of Credit" means, as to
any Bank at any time, an amount equal to the sum of (a) the aggregate principal
amount of all Revolving Loans made by such Bank then outstanding and (b) such
Bank's Revolving Commitment Percentage of the L/C Obligations then outstanding.
"Agreement" means this Credit Agreement, as amended, modified or
supplemented from time to time in accordance with the terms hereof.
"Applicable Index Rate" means, in respect of any Money Market Loan
requested pursuant to an Index Rate Money Market Loan Request, LIBOR.
"Applicable Margin" means, with respect to the Revolving Loans, for
each Margin Period, the rate per annum for the relevant Type of Revolving Loan
set forth below opposite the Debt to Capitalization Ratio of the Borrower on the
last day of the fiscal quarter to which such Margin Period relates:
<PAGE> 3
<TABLE>
<CAPTION>
Debt to Capitalization CIBC Alternate Eurodollar
Ratio Base Rate Loans Loans
- ---------------------- --------------- ----------
<S> <C> <C>
Greater than .50% 1.50%
.65 to 1.0
Greater than 0% 1.00%
.55 to 1.0 but
less than or equal to
.65 to 1.0
Greater than 0% .70%
.5 to 1.0 but
less than or equal to
.55 to 1.0
Greater than 0% .50%
.4 to 1 but
less than or equal to
.5 to 1.0
Less than 0% .35%
or equal to
.4 to 1.0
</TABLE>
provided, however, that until the Margin Period relating to the fiscal quarter
ending November 26, 1994, the Applicable Margin shall be 0% for CIBC Alternate
Base Rate Loans and 1.00% for Eurodollar Loans, and provided, further, that if
at any time the Borrower shall fail to deliver the financial statements required
by Section 8.1(a) and (b) for any fiscal quarter or the related Compliance
Certificate required by Section 8.1(c) on or before the date such statements and
Compliance Certificate are required to be delivered pursuant to such Sections,
the Debt to Capitalization Ratio shall be deemed for purposes of this definition
to be greater than .65 to 1.0 for the period which commences five Business Days
after such required date of delivery and ends on the date which is five Business
Days after such financial statements and Compliance Certificate are actually
delivered (each such period, a "Late Delivery Period"), after which the
Applicable Margin for the remainder of such Margin Period shall be determined in
accordance with the preceding schedule (subject, nevertheless, to the overriding
provisions of this proviso insofar as this proviso may apply to any other then
delinquent financial statements and/or Compliance Certificate) and provided,
further, that if, when delivered, such statements and certificate shall support
a determination of an Applicable Margin for such Late Delivery Period which is
less than that determined therefor in accordance with the foregoing proviso, the
Applicable Margin for such period shall be retroactively reduced to such lesser
amount.
"Application" means an application, in such form as the Letter of
Credit Bank may specify from time to time (a copy of
<PAGE> 4
the current form of which is attached hereto as Exhibit I), requesting the
Letter of Credit Bank to open a Letter of Credit, as such application may be
amended, modified or supplemented from time to time.
"Available Revolving Commitment" means, as to any Bank at any time, an
amount equal to the excess, if any, of (a) such Bank's Revolving Commitment over
(b) such Bank's Aggregate Outstanding Revolving Extensions of Credit.
"Bank Obligations" means all obligations and liabilities of the
Borrower and its Subsidiaries under or in connection with the Credit Documents,
now existing or hereafter created, contingent or not, due or not, arising by
operation of law or otherwise.
"Beneficial Ownership" by a Person when used with respect to any
Voting Shares is defined to mean beneficial ownership by such Person of such
Voting Shares as defined in Rule 13d-3 of the Exchange Act.
"Borrowing" means a borrowing hereunder consisting of Revolving Loans
made to the Borrower by the Banks pursuant to Section 2. A Borrowing is a "CIBC
Alternate Base Rate Borrowing" if such Loans are CIBC Alternate Base Rate Loans
and a "Euro-Dollar Borrowing" if such Loans are Euro-Dollar Loans.
"Borrowing Date" means, any Domestic Business Day, or, in the case of
Euro-Dollar Loans, any Euro-Dollar Business Day, specified in a notice pursuant
to (a) Section 2.2 or 4.2 as a date on which the Borrower requests the Banks to
make Revolving Loans or Money Market Loans, respectively, hereunder or (b)
Section 3.2 as a date on which the Borrower requests the Letter of Credit Bank
to issue a Letter of Credit hereunder.
"Change of Control" means the occurrence of either of the following
events: (x) any Person or any Persons acting together which would constitute a
Group, together with any Affiliates thereof, shall after the Closing Date
purchase Voting Shares of the Borrower such that such Person or Group, together
with such Affiliates, have Beneficial Ownership of Voting Shares of the Borrower
entitling such Person or Group, together with such Affiliates, to exercise at
least 40% of the total voting power of all classes of Voting Shares of the
Borrower; or (y) any Person or any Group of Persons, together with any
Affiliates thereof, shall succeed in having a sufficient number of its or their
nominees elected to the Board of Directors of the Borrower such that such
nominees so elected (whether new or continuing as directors) shall constitute a
majority of the Board of Directors of the Borrower.
"Charges" has the meaning set forth in Section 5.3.
<PAGE> 5
"CIBC" has the meaning set forth in the first paragraph of this
Agreement.
"CIBC Alternate Base Rate" means on any particular date, a rate of
interest per annum equal to the higher of:
(a) the rate of interest most recently announced by CIBC at its
Domestic Lending Office as its base rate; and
(b) the Federal Funds Rate for such date plus 1/2 of 1.0%.
The CIBC Alternate Base Rate is not necessarily intended to be the lowest rate
of interest charged by CIBC in connection with extensions of credit.
"CIBC Alternate Base Rate Borrowing" has the meaning set forth in the
definition of "Borrowing" in this Section 1.1.
"CIBC Alternate Base Rate Loan" means a Revolving Loan which bears
interest as provided in Section 2.4(a).
"Closing Date" means the date on which each of the conditions
precedent to the effectiveness of this Agreement contained in Section 6.2 shall
have been satisfied or waived in accordance with the terms and conditions
thereof.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Collateral" means all personal property (tangible and intangible) in
which a security interest, assignment or lien is now or hereafter granted to the
Collateral Agent for the benefit of the Collateral Agent, the Administrative
Agent and the Banks, or which is now or hereafter issued by the Borrower or any
of its Subsidiaries to the Collateral Agent for the benefit of the Collateral
Agent, the Administrative Agent and the Banks, as security for the Bank
Obligations.
"Collateral Agent" has the meaning set forth in the first paragraph of
this Agreement.
"Commitment Fee Rate" means, for each day during any Margin Period,
the rate per annum set forth below opposite the Debt to Capitalization Ratio of
the Borrower on the last day of the fiscal quarter to which such Margin Period
relates:
<TABLE>
<CAPTION>
Debt to Capitalization Commitment
Ratio Fee Rate
---------------------- ----------
<S> <C>
Greater than .50%
.65 to 1.0
<PAGE> 6
Greater than .375%
.55 to 1.0 but
less than or equal
to .65 to 1.0
Greater than .25%
.5 to 1.0 but
less than or equal
to .55 to 1.0
Greater than .125%
.4 to 1.0 but
less than or equal
to .5 to 1.0
Less than .10%
or equal to
.4 to 1.0
</TABLE>
provided, however, that until the Margin Period relating to the fiscal quarter
ending November 26, 1994, the Commitment Fee Rate shall be .375%, and provided,
further, that if at any time the Borrower shall fail to deliver the financial
statements required by Section 8.1(a) and (b) for any fiscal quarter or the
related Compliance Certificate required by Section 8.1(c) on or before the date
such statements and Compliance Certificate are required to be delivered pursuant
to such Sections, the Debt to Capitalization Ratio shall be deemed for purposes
of this definition to be greater than .65 to 1.0 for the period which commences
five Business Days after such required date of delivery and ends on the date
which is five Business Days after such financial statements and Compliance
Certificate are actually delivered (each such period, a "Late Delivery Period"),
after which the Commitment Fee Rate for the remainder of such Margin Period
shall be determined in accordance with the preceding schedule (subject,
nevertheless, to the overriding provisions of this proviso insofar as this
proviso may apply to any other then delinquent financial statements and/or
Compliance Certificate) and provided, further, that if, when delivered, such
statements and certificate shall support a determination of a Commitment Fee
Rate for such Late Delivery Period which is less than that determined therefor
in accordance with the foregoing proviso, the Commitment Fee Rate for such
period shall be retroactively reduced to such lesser amount.
"Commitment Transfer Supplement" means a Commitment Transfer
Supplement substantially in the form of Exhibit N.
"Compliance Certificate" has the meaning set forth in Section 8.1(c).
"Consolidated Current Liabilities" means at any date (i) the
consolidated current liabilities (less any consolidated current tax liabilities
and any consolidated current Debt of the
<PAGE> 7
type described in clauses (i)-(iv) of the definition of "Debt" in this Section
1.1) of the Borrower and its Consolidated Subsidiaries plus (ii) the current
liabilities (other than any consolidated current Debt of the type described in
clauses (i)-(iv) of the definition of "Debt" in this Section 1.1) of any Person
(other than the Borrower or a Consolidated Subsidiary) which are Guaranteed by
the Borrower or a Consolidated Subsidiary, all determined as of such date.
"Consolidated Net Worth" means at any date the consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries ((i) less
an amount equal to any write-up in the book carrying value of any assets of the
Borrower or any of its Consolidated Subsidiaries resulting from a revaluation
thereof subsequent to November 27, 1993, (ii) less an amount equal to
extraordinary gains realized by the Borrower and its Consolidated Subsidiaries
subsequent to the Closing Date and (iii) plus an amount equal to extraordinary
losses realized by the Borrower and its Consolidated Subsidiaries subsequent to
the Closing Date).
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements as of such date.
"Consolidated Tangible Net Worth" means at any date, Consolidated Net
Worth after deducting therefrom the following:
(a) goodwill, including any amounts (however designated on the
balance sheet) representing the cost of acquisitions of Subsidiaries in
excess of underlying tangible assets;
(b) patents, trademarks and copyrights; and
(c) deferred charges (including, but not limited to, unamortized debt
discount and expense, organization expenses and experimental and
development expenses, but excluding prepaid expenses).
"Contractual Obligation" as to any Person, means any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Credit Documents" means this Agreement, the Notes, the Applications,
the Security Documents, the Fee Letter and all documents, instruments and
agreements executed and/or delivered in connection herewith or therewith.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds,
<PAGE> 8
debentures, notes or other similar instruments, (iii) all obligations of such
Person to pay the deferred purchase price of property or services, except trade
accounts payable arising in the ordinary course of business, (iv) all
obligations of such Person as lessee under capital leases, (v) all Debt of
others secured by a Lien on any asset of such Person (other than Liens arising
under Permitted Operating Lease Transactions), whether or not such Debt is
assumed by such Person, (vi) all Debt of others Guaranteed by such Person, (vii)
indebtedness and other obligations arising under acceptance facilities and the
face amount of all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder, and (viii) any withdrawal or
other liability incurred under ERISA by such Person (or, if such Person is the
Borrower, the Borrower and its ERISA Affiliates) to a Multiemployer Plan.
"Debt for Borrowed Money" of any Person means the Debt of such Person
described in clauses (i) and (ii) of the definition of "Debt" in this Section
1.1.
"Debt to Capitalization Ratio" means, at any time, the ratio of (i)
the aggregate amount of then outstanding Debt of the Borrower and its
Subsidiaries described in clauses (i) through (vi) of the definition of "Debt"
in this Section 1.1 to (ii) the sum of (x) the amount described in clause (i) of
this definition and (y) the then Consolidated Net Worth.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Defaulting Bank" has the meaning set forth in the definition of
"Required Banks".
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"Domestic Lending Office" means initially, as to each Bank, its office
designated as such on Schedule I, and thereafter, upon notice to the Borrower
and the Administrative Agent, such other office of such Bank, if any, which
shall be making or maintaining CIBC Alternate Base Rate Loans.
"EBITDA" means, for any period, the sum of (i) consolidated net income
of the Borrower and its Consolidated Subsidiaries for such period (excluding
extraordinary gains and losses), plus (ii) interest and tax expense of the
Borrower and its Consolidated Subsidiaries for such period to the extent
deducted in determining such consolidated net income plus (iii) depreciation and
amortization expense of the Borrower and its Consolidated Subsidiaries for such
period to the extent deducted in determining such consolidated net income, plus
(iv) equity
<PAGE> 9
losses attributable to the Mexican Joint Venture to the extent deducted in
determining such consolidated net income, minus (v) equity gains attributable to
the Mexican Joint Venture to the extent included in determining such
consolidated net income.
"Environmental Law" has the meaning set forth in Section 8.22(e).
"ERISA" means the Employee Retirement Income Security Act of 1974 and
the regulations promulgated and rulings issued thereunder, as amended from time
to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which is a member of a controlled group of which the Borrower or
any Subsidiary of the Borrower is a member and which is under common control
with the Borrower or any Subsidiary of the Borrower within the meaning of
Section 414 of the Code and the regulations promulgated and rulings issued
thereunder.
"ERISA Event" means (a) a "reportable event" as such term is described
in Section 4043 of ERISA (other than a "reportable event" not subject to the
provision for 30-day notice to the PBGC under 29 C.F.R. 2615), or (b) the
withdrawal of the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate of either of them from a Multiple Employer Plan during a plan year in
which it was a "substantial employer", as such term is defined in Section
4001(a)(2) of ERISA, which would result in any liability to the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate of either of them, or the
incurrence of liability by the Borrower, any Subsidiary of the Borrower or any
ERISA Affiliate of either of them under Section 4064 of ERISA upon the
termination of a Multiple Employer Plan, or (c) an event described in Section
4068(f) of ERISA, or (d) the distribution of a notice of intent to terminate a
Plan pursuant to Section 4041(a)(2) of ERISA or the treatment of a Plan
amendment as a termination under Section 4041 of ERISA, where, in either case,
such termination would result in any liability to the Borrower, a Subsidiary of
the Borrower or any ERISA Affiliate of either of them, or (e) the failure by the
Borrower, a Subsidiary of the Borrower or any ERISA Affiliate of either of them
to make a payment to a Plan pursuant to Section 302(f)(1) of ERISA or (f) the
adoption of any amendment to a Plan requiring the provision of security to such
Plan pursuant to Section 307 of ERISA, or (g) the institution of proceedings to
terminate a Plan by the PBGC under Section 4042 of ERISA, or (h) any other event
or condition which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
"Euro-Dollar Borrowing" has the meaning set forth in the definition of
"Borrowing" in this Section 1.1.
<PAGE> 10
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London, England.
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate designated as such on Schedule I or such other office,
branch or affiliate of such Bank as it may hereafter designate as its
Euro-Dollar Lending Office by notice to the Borrower and the Administrative
Agent.
"Euro-Dollar Loan" means a Revolving Loan which bears interest as
provided in Section 2.4(b).
"Euro-Dollar Reference Bank" means the principal London offices of
CIBC or such other Bank as may be appointed pursuant to Section 11.6(i).
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents). The Adjusted London Interbank Offered Rate shall be adjusted
automatically on and as of the effective date of any change in the Euro-Dollar
Reserve Percentage.
"Event of Default" has the meaning set forth in Section 9.1.
"Excess Cash Flow" means, for any period, an amount equal to the sum
of (i) consolidated net income or loss of the Borrower and its Consolidated
Subsidiaries for such period, plus (ii) an amount equal to the amount of
depreciation expense, amortization expense (including the amortization of
goodwill), accrued non-cash interest expense and all other non-cash charges
deducted in arriving at such consolidated net income or loss, plus (iii) an
amount equal to the aggregate Net Cash Proceeds of the sale, lease, transfer or
other disposition of assets by the Borrower and its Consolidated Subsidiaries
during such period (other than sales of inventory in the ordinary course of
business) to the extent not required to be applied to mandatory prepayments or
payments on the Loans, plus (iv) an amount (whether negative or positive) equal
to the change in Consolidated Current Liabilities of the Borrower and its
Consolidated Subsidiaries during such period, plus (v) without duplication with
other items included in this definition the amount of any tax refunds or credits
received by the Borrower and
<PAGE> 11
its Consolidated Subsidiaries during such period, less (vi) an amount (whether
negative or positive) equal to the change in non-cash current assets of the
Borrower and its Consolidated Subsidiaries for such period, less (vii) an amount
equal to the aggregate amount of capital expenditures of the Borrower and its
Subsidiaries permitted to be made during such period pursuant to Section 8.12,
less (viii) an amount equal to the sum of all regularly scheduled payments and
optional and mandatory prepayments of principal on Debt for Borrowed Money of
the Borrower and its Consolidated Subsidiaries (other than on the Revolving
Loans and Money Market Loans) actually made during such period to the extent
permitted hereunder, less (ix) an amount equal to the amount of all payments
described in clauses (i) and (ii) of the definition of "Restricted Payments", if
any, actually made by the Borrower during such period, less (x) an amount equal
to the net gain on the sale, lease, transfer or other disposition of assets by
the Borrower and its Consolidated Subsidiaries during such period (other than
sales of inventory in the ordinary course of business) to the extent included in
arriving at such consolidated net income or loss, less (xi) an amount equal to
the aggregate amount of all Investments (other than Temporary Cash Investments),
if any, actually made with cash by the Borrower and its Subsidiaries during such
period.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Credit Agreement" as defined in the recitals to this
Agreement.
"Existing Multiple Draw Term Loan Agreement" means the Multiple Draw
Term Loan Agreement dated as of May 6, 1994 among the Borrower, the lenders
parties thereto and CIBC as Agent, as amended to but excluding the date hereof.
"Existing Standby Letter of Credit Agreement" means the Standby Letter
of Credit Issuance and Reimbursement Agreement, dated as of February 14, 1994,
among the Borrower, the Standby Participating Banks and CIBC, as Issuing Bank,
as amended to but excluding the date hereof.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Domestic Business Day, for the next preceding Domestic
Business Day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a Domestic Business Day, the average of the
quotations for such day on such transactions received by the Administrative
Agent from three Federal funds brokers of recognized standing selected by it.
<PAGE> 12
"Fee Letter" the fee letter dated as of October 25, 1994 between the
Borrower and the Administrative Agent with respect to certain fees, as the same
may be amended, supplemented or otherwise modified from time to time by a
written instrument executed by the parties thereto.
"GE Credit Program Documents" means the Monogram Credit Card Bank of
Georgia Program Agreement, dated as of November 27, 1989, by and among the
Borrower, Somerville and Monogram Credit Card Bank of Georgia and the Commercial
Credit Account Purchase and Service Agreement, dated as of November 28, 1993,
between the Borrower, Somerville and General Electric Capital Corporation, as
amended, modified or supplemented from time to time.
"Governmental Authority" means any federal, state, local, foreign or
other governmental or administrative body, instrumentality, department or agency
or any court, tribunal, administrative hearing body, arbitration panel,
commission or other similar dispute resolving panel or body.
"Grid Money Market Loan Note" has the meaning set forth in Section 4.4
(a); collectively, the "Grid Money Market Loan Notes."
"Group" means a "group" for purposes of Section 13(d) of the Exchange
Act.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hazardous Substance" has the meaning set forth in Section 8.22(e).
"Indemnified Party" has the meaning set forth in Section 11.10.
"Index Rate Money Market Loan Request" means any Money Market Loan
Request requesting the Banks to offer to make Money
<PAGE> 13
Market Loans at an interest rate equal to LIBOR for the applicable period plus
(or minus) a margin.
"Individual Money Market Loan Note" has the meaning set forth in
Section 4.4 (b).
"Insufficiency" means, with respect to any Plan, the amount, if any,
of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"Interest Coverage Ratio" has the meaning set forth in Section 8.17.
"Interest Period" means, with respect to each Euro-Dollar Borrowing,
(i) initially, the period commencing on the date of such Borrowing and ending
one, two, three or six months thereafter, as the Borrower may elect in the
applicable Notice of Borrowing or notice of conversion, as the case may be, with
respect thereto and (ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such Euro-Dollar Borrowing and
ending one, two, three or six months thereafter, as the Borrower may elect by
irrevocable notice received by the Administrative Agent prior to 11:00 A.M., New
York City time, on the day which is not less than three Euro-Dollar Business
Days prior to the end of the then current Interest Period with respect thereto;
provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month;
(c) if any Interest Period would otherwise include a date on which a
scheduled payment of principal of any of the Loans is required to be made
under this Agreement but does not end on such date, then, subject to
Section 5.5, (i) the Interest Period for the principal amount (if any) of
each Loan required to be repaid on such date shall end on such date and
(ii) the remainder (if any) of each such Loan shall have an Interest Period
determined in accordance with the other provisions of this definition; and
(d) any Interest Period that would otherwise extend beyond the
Revolving Termination Date shall, subject to Section 5.5, end on such date.
<PAGE> 14
"Inter-Facility Agreement" means the inter-facility agreement,
substantially in the form of Exhibit K, to be entered into among the Collateral
Agent, the Administrative Agent, the Merchandise Letter of Credit Bank, the
Borrower and Somerville, as amended, supplemented or otherwise modified from
time to time.
"Investment" means any investment in any Person, whether by means of
asset or share purchase, capital contribution, loan, advance, time deposit or
otherwise, other than the purchase by such Person of assets (i) either
constituting capital expenditures or (ii) in the ordinary course of such
Person's business.
"L/C Fee Payment Date" means the last day of each March, June,
September and December.
"L/C Obligations" means, at any time, an amount equal to the sum of
(a) the aggregate undrawn and unexpired amount of the then outstanding Letters
of Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to Section 3.5.
"L/C Participants" means, collectively, with respect to any Letter of
Credit, all the Banks which have Revolving Commitments other than the Letter of
Credit Bank which is the issuer thereof.
"L/C Rate" means a rate per annum that is at all times equal to the
Applicable Margin for Euro-Dollar Loans then in effect.
"Lending Office" means, as to each Bank, its Domestic Lending Office
or its Euro-Dollar Lending Office, as the context may require.
"Letter of Credit" has the meaning set forth in subsection 3.1(a).
"Letter of Credit Bank" means CIBC or any other Bank designated by the
Borrower with the consent of such Bank and the Administrative Agent to replace
the previous Letter of Credit Bank.
"LIBOR" with respect to each Interest Period pertaining to a Euro-
Dollar Loan (or with respect to each period during which an Index Rate Money
Market Loan is to remain outstanding), means the rate (rounded upwards, if
necessary, to the next higher 1/16 of 1%) per annum at which deposits in U.S.
Dollars are offered to the Euro-Dollar Reference Bank in the London interbank
market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days
before the first day of such Interest Period (or period in respect of such Index
Rate Money Market Loan, as the case may be) in an amount approximately equal to
the principal amount of the Euro-Dollar Loan of the Euro-Dollar Reference Bank
<PAGE> 15
to which such Interest Period is to apply (or, in the case of an Index Rate
Money Market Loan, in an amount equal to $1,000,000) and for a period of time
comparable to such Interest Period (or period in respect of an Index Rate Money
Market Loan, as the case may be).
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"Loans" means the collective reference to the Revolving Loans and the
Money Market Loans; individually, a "Loan".
"Margin Period" in relation to any fiscal quarter, means the period
which (i) commences five Business Days after the earlier of (x) the date of
delivery to the Administrative Agent of the financial statements required by
Section 8.1(a) or (b) for such quarter and the related Compliance Certificate
required by Section 8.1(c) or (y) the date such delivery is required, and (ii)
ends four Business Days after the earlier of (x) the date of delivery to the
Administrative Agent of such financial statements and related Compliance
Certificate for the next succeeding fiscal quarter or (y) the date such delivery
is required.
"Margin Stock" has the meaning set forth in Regulation U.
"Materially Adverse Effect" means (i) with respect to the Borrower and
its Subsidiaries, any materially adverse change in the business, operations,
condition (financial or otherwise), assets or prospects of the Borrower and its
Subsidiaries taken as a whole, or (ii) any fact or circumstance as to which,
singly or in the aggregate, the Borrower has reason to believe there is a
reasonable possibility of (a) a materially adverse change described in clause
(i) or (b) the inability of the Borrower or any of its Subsidiaries to perform
in any material respect its obligations hereunder or under the other Credit
Documents.
"Merchandise Letter of Credit Bank" means any bank which shall issue
documentary letters of credit under the Merchandise Letter of Credit Facility,
together with its successors.
"Merchandise Letter of Credit Facility" means the Letter of Credit
Issuance and Reimbursement Agreement dated as of November 18, 1994 between
Commerce Bank, N.A. and the Borrower, as such agreement may be amended,
supplemented, otherwise modified or replaced from time to time with the consent
of the Required Banks.
<PAGE> 16
"Mexican Joint Venture" means the joint venture entered into between
the Borrower and Alfa S.A. de C.V., a Mexican corporation, or any of its
Subsidiaries, pursuant to the terms of that certain Shareholders' Agreement
dated as of October 18, 1993, as such Shareholders' Agreement may be amended,
supplemented or otherwise modified from time to time in a manner not adverse to
the interests of the Banks.
"Minority Investment" means any Investment consisting of the
acquisition of ownership interests in any partnership or joint venture.
"Money Market Loan Assignees" has the meaning set forth in Section
11.6B(a).
"Money Market Loan Assignment" means any assignment by a Bank to a
Money Market Loan Assignee of a Money Market Loan and related Individual Money
Market Loan Note; any such Money Market Loan Assignment to be registered in the
Register must set forth, in respect of the Money Market Loan Assignee
thereunder, the full name of such Money Market Loan Assignee, its address for
notices, its lending office address (in each case with telephone and facsimile
transmission numbers) and payment instructions for all payments to such Money
Market Loan Assignee, and must contain an agreement by such Money Market Loan
Assignee to comply with the provisions of Section 11.6B and Section 11.6A(g) to
the same extent as any Bank.
"Money Market Loan Commitment Period" means the period from and
including the Closing Date until the date which is 15 days prior to the
Revolving Credit Termination Date.
"Money Market Loan Confirmation" means each confirmation by the
Borrower of its acceptance of Money Market Loan Offers, which Money Market Loan
Confirmation shall be substantially in the form of Exhibit M-1 and shall be
delivered to the Administrative Agent in writing or by facsimile transmission.
"Money Market Loan Interest Payment Date" means, as to each Money
Market Loan, each interest payment date specified by the Borrower for such Money
Market Loan in the related Money Market Loan Request.
"Money Market Loan Maturity Date" means, as to any Money Market Loan,
the date specified by the Borrower pursuant to Section 4.2(d)(2) in its
acceptance of the related Money Market Loan Offer.
"Money Market Loan Notes" means the collective reference to the Grid
Money Market Loan Notes and the Individual Money Market Loan Notes; each,
individually, a "Money Market Loan Note."
<PAGE> 17
"Money Market Loan Offer" means each offer by a Bank to make Money
Market Loans pursuant to a Money Market Loan Request, which Money Market Loan
Offer shall contain the information specified in Exhibit M-2 and shall be
delivered to the Administrative Agent by telephone, immediately confirmed by
facsimile transmission.
"Money Market Loan Request" means each request by the Borrower for
Banks to submit bids to make Money Market Loans, which request shall contain the
information in respect of such requested Money Market Loans specified in Exhibit
M-3 and shall be delivered to the Administrative Agent in writing or facsimile
transmission, or by telephone, immediately confirmed by facsimile transmission.
"Money Market Loans" means each Money Market Loan made pursuant to
Section 4.
"Moody's" means Moody's Investors Service, Inc. or if such company
shall cease to issue ratings, another nationally recognized statistical rating
company selected in good faith by mutual agreement of the Administrative Agent
and the Borrower.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate of either of them is making or accruing an
obligation to make contributions or has within any of the preceding three plan
years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means an employee benefit plan, other than a
Multiemployer Plan, subject to Title IV of ERISA to which the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate of the Borrower or any
Subsidiary of the Borrower, and more than one employer other than the Borrower,
any Subsidiary of the Borrower or an ERISA Affiliate of the Borrower or any
Subsidiary of the Borrower, is making or accruing an obligation to make
contributions or, in the event that any such plan has terminated, to which the
Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower
or any Subsidiary of the Borrower made or accrued an obligation to make
contributions during any of the five plan years preceding the date of
termination of such plan.
"Net Cash Proceeds" means, with respect to any issuance or creation of
any Debt or any other financing or any sale, lease or other disposition of
assets or issuance of capital stock (other than pursuant to the exercise of
employee or director stock options), (a) the cash proceeds (including, without
limitation, all cash proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received) received by the Borrower or any Subsidiary of the Borrower, minus (b)
brokerage commissions and other reasonable fees and expenses (including
<PAGE> 18
fees and expenses of counsel and investment bankers) related to such financing,
sale, lease or other disposition or issuance, and minus (c) in the case of any
such issuance or creation of any Debt or financing, sale, lease or other
disposition of assets, (i) provisions for all taxes payable as a result thereof
and in connection therewith, (ii) payments made to retire Debt secured by or
otherwise relating directly to such assets being sold or otherwise disposed of
or the assets which are securing such issuance, creation or financing where
payment of such Debt is required in connection therewith and (iii) appropriate
amounts to be provided by the Borrower or any Subsidiary of the Borrower, as the
case may be, as a reserve, in accordance with generally accepted accounting
principles consistently applied with those applied in the preparation of the
financial statements referred to in Section 7.9(b), against any liabilities
associated with such assets being sold or otherwise disposed of and retained by
the Borrower or any Subsidiary of the Borrower, as the case may be, after such
sale, lease or other disposition of such assets.
"Note Pledge Agreement" means the amended and restated note pledge
agreement, substantially in the form of Exhibit C hereto, to be entered into
between the Borrower and the Collateral Agent for the benefit of the Collateral
Agent, the Administrative Agent, the Banks and the Merchandise Letter of Credit
Bank.
"Notes" means the collective reference to the Revolving Notes and the
Money Market Notes; individually, a "Note".
"Notice of Borrowing" has the meaning set forth in Section 2.2.
"Pad Site" has the meaning set forth in the definition of "Permitted
Pad Sale".
"Participants" has the meaning set forth in Section 11.6(b).
"Participating Interest" means with respect to each Letter of Credit
(i) in the case of the Letter of Credit Bank, its interest in such Letter of
Credit and any Application or time draft relating thereto after giving effect to
the granting of any participating interests therein pursuant hereto and (ii) in
the case of each L/C Participant, its undivided participating interest in such
Letter of Credit and any Application or time draft relating thereto.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Operating Lease Transactions" means an operating lease of
facilities or tangible personal property by the Borrower, as lessee, under which
the Borrower provides a Lien
<PAGE> 19
on its interest in the underlying operating lease and on its interest, if any,
in the underlying leased facilities or property.
"Permitted Pad Sale" means any sale of that portion (any such portion,
a "Pad Site") of any real property acquired by the Borrower in excess of the
portion thereof needed for the operation of a retail store, as determined by the
Borrower; provided that (i) the acquisition of such real property was not
prohibited by any provision of this Agreement, (ii) the aggregate acreage of all
Pad Sites on such real property does not exceed 50% of the total acreage of such
real property and (iii) such sale is completed within eighteen months of the
acquisition of such real property.
"Person" means an individual, a corporation, a partnership, a joint
venture, an association, a trust or any other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"Plan" means an employee benefit plan (other than a Multiemployer
Plan), including any Multiple Employer Plan, which is or, in the event that any
such plan has been terminated within five years after the occurrence of a
transaction described in Section 4069 of ERISA, was maintained for employees of
the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the
Borrower or any Subsidiary of the Borrower and is subject to Title IV of ERISA.
"Pledge Agreements" means the collective reference to the Note Pledge
Agreement and the Stock Pledge Agreement.
"Projected Cash Flow Financial Statements" has the meaning set forth
in Section 7.9(c).
"Property" has the meaning set forth in Section 8.22(a).
"Prudential" means The Prudential Insurance Company of America.
"Prudential Loan Agreement" means the Loan Agreement, dated June 20,
1989, by and among the Borrower, Knox Home Centers, Inc., Somerville and
Prudential, as the same may be amended, supplemented or otherwise modified
pursuant to the terms hereof and thereof.
"Prudential Real Estate Financing" means the financing by Prudential
provided for by the Prudential Loan Agreement and other related documentation.
"Purchasing Banks" has the meaning set forth in Section 11.6(c).
<PAGE> 20
"Register" has the meaning set forth in Section 11.6(d).
"Regulation G" means Regulation G of the Board of Governors of the
Federal Reserve System (or any successor), as in effect from time to time.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System (or any successor), as in effect from time to time.
"Reimbursement Obligation" means the obligation of the Borrower to
reimburse the Letter of Credit Bank pursuant to Section 3.5 for amounts drawn
under Letters of Credit issued by such Bank and for payments of time drafts
accepted thereunder.
"Remedial Work" has the meaning set forth in Section 8.22(c).
"Rent Expense" means all expenses related to operating leases.
"Required Banks" means at any time Banks having Revolving Commitment
Percentages which aggregate at least 51%; provided that for the purposes of this
definition the Revolving Commitment of any Bank shall be disregarded if and for
so long as such Bank (each, a "Defaulting Bank") shall have not theretofore made
available to (i) the Administrative Agent its pro rata share of a given
Borrowing in accordance with Section 2.2(c) or (ii) the Letter of Credit Bank
its pro rata share of a given unreimbursed reimbursement obligation in
accordance with Section 3.4(a).
"Requirement of Law" means as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Restricted Payment" means (i) any dividend or other distribution on
any shares of the Borrower's capital stock (common or preferred), (ii) any
payment (including, without limitation, the setting aside of assets or the
deposit of funds therefor) on account of the purchase, redemption, retirement or
acquisition of (a) any shares of the Borrower's capital stock or (b) any option,
warrant or other right to acquire shares of the Borrower's capital stock, (iii)
any payment or prepayment of principal or interest on account of Debt for
Borrowed Money (other than the Loans but including, without limitation, the
Senior Subordinated Note) or any purchase, defeasance, redemption, retirement or
acquisition of any principal or interest on such Debt (including, without
limitation, the setting
<PAGE> 21
aside of assets or the deposit of funds therefor) or (iv) any payment of
management or consulting fees to an Affiliate of the Borrower; provided,
however, that the conversion into common stock of the Borrower of all or any
portion of the Borrower's Series A Cumulative Convertible Preferred Stock shall
not be deemed to result in a Restricted Payment; and, provided, further, that
the conversion of shares of any class of the common stock of the Borrower into
another class of common stock of the Borrower shall not be deemed to result in a
Restricted Payment.
"Revolving Borrowing" means a borrowing consisting of Revolving Loans
of the same Type made on the same day.
"Revolving Commitment" means as to any Bank, the obligation of such
Bank to make Revolving Loans to the Borrower in an aggregate principal amount at
any one time outstanding not to exceed the amount set forth under the heading
"Revolving Commitments" opposite such Bank's name on Schedule I, as such amount
may be reduced or adjusted from time to time pursuant to this Agreement.
"Revolving Commitment Percentage" means, as to any Bank at any time,
the percentage of the aggregate Revolving Commitments then constituted by such
Bank's Revolving Commitment (or, at any time after the Revolving Commitments
shall have expired or terminated, the percentage of the aggregate principal
amount of the Revolving Loans then outstanding then constituted by the aggregate
principal amount of such Bank's Revolving Loans then outstanding).
"Revolving Credit Period" means the period commencing on the Closing
Date and ending on the Revolving Termination Date, or the earlier date of
termination in whole of the Revolving Commitments pursuant to Section 2.6 or
2.7.
"Revolving Loans" has the meaning set forth in Section 2.1.
"Revolving Note" means a promissory note of the Borrower to the order
of any Bank, substantially in the form of Exhibit A hereto, evidencing the
obligation of the Borrower to repay the Revolving Loans made by such Bank, as
amended, modified, supplemented, replaced or substituted for from time to time.
"Revolving Termination Date" means the fifth anniversary of the
Closing Date.
"SEC" means the Securities and Exchange Commission.
"Security Agreement" the security agreement substantially in the form
of Exhibit D hereto to be entered into between the Borrower and the Collateral
Agent, and such other security agreements, assignments, pledges and similar
documents,
<PAGE> 22
in form and substance satisfactory to the Administrative Agent, as the
Administrative Agent may request, pursuant to which the Borrower shall grant to
the Collateral Agent for the benefit of the Collateral Agent, the Administrative
Agent, the Banks and the Merchandise Letter of Credit Bank a valid, perfected
and enforceable first (unless otherwise permitted therein) priority lien on and
security interest in certain tangible and/or intangible assets of the Borrower
(other than inventory), as amended, modified or supplemented from time to time.
"Security Documents" means the Security Agreement, the Subsidiary
Security Agreement, the Subsidiary Guarantee, the Pledge Agreements and all
other security agreements, mortgages, pledges and assignments at any time
delivered by the Borrower or its Subsidiaries to the Collateral Agent pursuant
to the terms of this Agreement, as amended, modified or supplemented from time
to time.
"Senior Subordinated Note Indenture" means the Indenture between the
Borrower and United States Trust Company of New York, dated as of April 20, 1993
pursuant to which the Senior Subordinated Notes were issued, as the same may be
amended, supplemented or otherwise modified pursuant to the terms hereof and
thereof.
"Senior Subordinated Notes" means the Borrower's 9-1/8% Senior
Subordinated Notes due April 15, 2003 issued pursuant to the Senior Subordinated
Note Indenture.
"Somerville" means Somerville Lumber and Supply Co., Inc., a
Massachusetts corporation.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-
Hill, Inc., or if such company shall cease to issue ratings, another nationally
recognized statistical rating company selected in good faith by mutual agreement
of the Administrative Agent and the Borrower.
"Stock Pledge Agreement" means the pledge agreement, substantially in
the form of Exhibit G hereto, to be entered into between the Borrower and the
Collateral Agent, pursuant to which the Borrower shall maintain in favor of the
Collateral Agent for the benefit of the Collateral Agent, the Administrative
Agent, the Banks, the Merchandise Letter of Credit Bank and the Standby Letter
of Credit Bank, a valid, perfected and enforceable first priority lien on and
security interest in all shares of stock of the Borrower's Subsidiaries
identified therein, as amended, supplemented or otherwise modified from time to
time.
"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Borrower.
<PAGE>23
"Subsidiary Guarantee" means the guarantee, substantially in the form
of Exhibit E hereto, to be entered into between Somerville and the Collateral
Agent for the benefit of the Collateral Agent, the Administrative Agent, the
Banks and the Merchandise Letter of Credit Bank, as the same may be amended,
supplemented or otherwise modified from time to time.
"Subsidiary Security Agreement" means the security agreement,
substantially in the form of Exhibit F hereto, to be made by Somerville in favor
of the Collateral Agent, for the benefit of the Collateral Agent, the
Administrative Agent, the Banks and the Merchandise Letter of Credit Bank, as
the same may be amended, supplemented or otherwise modified from time to time.
"Temporary Cash Investment" means any Investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated in the highest grade (A1+/P1 or its equivalent) by a nationally recognized
credit rating agency or (iii) time deposits with, including certificates of
deposit issued by, any office located in the United States of any bank or trust
company that has capital, surplus and undivided profits aggregating at least
U.S. $500,000,000, and whose long term debt is rated A or higher by S&P and A2
or higher by Moody's, provided in each case that such Investment matures within
one year from the date of acquisition thereof by the Borrower or a Subsidiary.
"Transferee" has the meaning set forth in Section 11.6(f).
"Type" means, as to any Loan, its nature as a CIBC Alternate Base Rate
Loan, a Euro-Dollar Loan or a Money Market Loan.
"Uniform Customs" means the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, or any successor publication, as the same may be amended
from time to time.
"Voting Shares" means, with respect to any Person, shares of capital
stock of any class or classes (however designated) having general voting power
for the election of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).
"Warrants" means the warrants issued in connection with the issuance
of the Senior Subordinated Debentures.
"Withdrawal Liability" has the meaning specified under Part I of
Subtitle E of Title IV of ERISA.
<PAGE> 24
SECTION 1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in the Notes, any other Credit Document or any certificate or
other document made or delivered pursuant hereto.
(b) Unless otherwise specified herein, all accounting terms used
herein and in the Notes, any other Credit Document and any certificate or other
document made or delivered pursuant hereto, shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a basis
consistent (except for changes concurred with by the Borrower's independent
public accountants) with the audited consolidated financial statements of the
Borrower and its Consolidated Subsidiary for the fiscal year ended November 27,
1993. The parties hereto further agree that in the event that any change in
accounting principles from those used in the preparation of the financial
statements of the Borrower and its Consolidated Subsidiary for the fiscal year
ended November 27, 1993 hereafter occasioned by the promulgation of rules,
regulations, pronouncements and opinions by or required by the Financial
Accounting Standards Board or Accounting Principles Board of the American
Institute of Certified Public Accountants (or successors thereto or agencies
with similar functions) results in any change in the method of calculation of
financial covenants, standards or terms found in this Agreement, the
Administrative Agent and the Borrower shall enter into negotiations to amend (in
accordance with the provisions of Section 11.5) the financial covenants, terms
or standards contained in this Agreement to equitably reflect such change in
accounting principles with the desired result that the criteria for evaluating
the Borrower's and the Borrower's Subsidiaries' financial condition shall be the
same after such change as if such change had not been made. If and so long as
an amendment as contemplated by the immediately preceding sentence is not
adopted in accordance with the provisions of Section 11.5, the affected
financial covenants shall be computed without giving effect to such change in
accounting principles.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
<PAGE> 25
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
SECTION 2.1 Commitments to Lend. During the Revolving Credit Period
each Bank which has a Revolving Commitment severally agrees, on the terms and
conditions set forth in this Agreement, to lend to the Borrower from time to
time revolving credit loans (each a "Revolving Loan" and collectively, the
"Revolving Loans") not to exceed in the aggregate at any time outstanding, when
added to (i) such Bank's Revolving Commitment Percentage of the then outstanding
L/C Obligations and (ii) an amount equal to such Bank's Revolving Commitment
Percentage multiplied by the aggregate amount of all the Money Market Loans of
all the Banks then outstanding, the amount of its Revolving Commitment. Each
Borrowing under this Section 2.1(a) shall (i) be in an aggregate principal
amount of $5,000,000 or any larger multiple of $1,000,000 (except that a CIBC
Alternate Base Rate Borrowing may be in the aggregate amount of the then unused
Revolving Commitments) and (ii) consist of Revolving Loans of the same Type made
on the same day by the several Banks ratably in proportion to their respective
Revolving Commitments. The Borrower may borrow Revolving Loans under this
subsection to repay, or to the extent permitted by Section 2.8, prepay Revolving
Loans and reborrow Revolving Loans at any time during the Revolving Credit
Period.
SECTION 2.2 Method of Borrowing. (a) The Borrower shall give the
Administrative Agent written notice in substantially the form of Exhibit H (a
"Notice of Borrowing") on the Business Day of each CIBC Alternate Base Rate
Borrowing and at least three Euro-Dollar Business Days before each Euro-Dollar
Borrowing (provided, in the case of each type of Borrowing, such Notice of
Borrowing is received by the Administrative Agent prior to 11:00 A.M., New York
City time, on the required date of delivery) specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a CIBC Alternate Base Rate Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
(ii) the aggregate amount of such Borrowing,
(iii) whether the Loans comprising such Borrowing are to be CIBC
Alternate Base Rate Loans or Euro-Dollar Loans, and
(iv) in the case of a Euro-Dollar Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
(b) Upon receipt of a Notice of Borrowing, the Administrative Agent
shall promptly notify each Bank of the contents thereof and of such Bank's
ratable share of such Borrowing, and such Notice of Borrowing shall not
thereafter be revocable by the Borrower.
<PAGE> 26
(c) Not later than 1:00 PM (New York City time) on the date of each
Borrowing, each Bank shall make available its pro rata share of such Borrowing,
in Federal or other funds immediately available in New York City, to the
Administrative Agent at its address specified in or pursuant to Section 11.1.
Upon satisfaction of the applicable conditions specified in Section 6.1, the
Administrative Agent will make the funds so received from the Banks available to
the Borrower at the Administrative Agent's aforesaid address.
SECTION 2.3 Revolving Notes. (a) The Revolving Loans of each Bank
shall be evidenced by a promissory note of the Borrower, substantially in the
form of Exhibit A, with appropriate insertions as to payee, date and principal
amount (as amended, endorsed, extended or otherwise modified from time to time,
a "Revolving Note"), payable to the order of such Bank and in a principal amount
equal to the lesser of (i) the amount of the initial Revolving Commitment of
such Bank and (ii) the aggregate unpaid principal amount of all Revolving Loans
made by such Bank.
(b) The Revolving Commitment of each Bank shall be subject to semi-
annual mandatory commitment reductions on June 15 and December 15 of each year,
commencing on June 15, 1995; the aggregate amount of each Bank's Revolving
Commitment on any such date shall be reduced by such Bank's Revolving Commitment
Percentage of the amount set forth for such date in the following schedule:
<TABLE>
<CAPTION>
Date Principal Amount
---- ----------------
<S> <C>
June 15, 1995 $5,000,000
December 15, 1995 $5,000,000
June 15, 1996 $12,500,000
December 15, 1996 $12,500,000
June 15, 1997 $17,500,000
December 15, 1997 $17,500,000
June 15, 1998 $27,500,000
December 15, 1998 $27,500,000
June 15, 1999 $50,000,000
Fifth anniversary of $245,000,000
Closing Date
</TABLE>
provided that, if the Borrower shall settle its current dispute with the IRS
regarding the deductibility of certain fees and, as a result, shall make a
payment or payments in respect thereof to the IRS, then, to the extent of the
aggregate of such payments (but in no event more than $22,000,000), the
foregoing Revolving Commitment reductions scheduled during the twelve months
following the first such payment shall be postponed (such postponement to be
taken from such scheduled Commitment Reductions in direct order of maturity) and
added to the final required Revolving Commitment reduction; provided, further,
that
<PAGE> 27
such Revolving Commitment reductions schedule shall be subject to adjustment as
provided in Sections 2.6 and 2.7.
(c) Upon receipt of each Bank's Notes pursuant to Section 6.2(a) the
Administrative Agent shall mail such Notes to such Bank. Each Bank shall
record, and prior to any transfer of its Notes shall endorse on the schedules
forming a part thereof appropriate notations to evidence the date, amount and
maturity of each Loan made by it and the date and amount of each payment of
principal made by the Borrower with respect thereto; provided that the failure
of any Bank to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Notes. Each Bank is hereby
irrevocably authorized by the Borrower so to endorse its Notes and to attach to
and make a part of any Note a continuation of any such schedule as and when
required.
SECTION 2.4 Interest Rates. (a) Each CIBC Alternate Base Rate Loan
shall bear interest on the outstanding principal amount thereof, for each day
from the date such Loan is made until it becomes due, at a rate per annum equal
to the sum of the Applicable Margin plus the CIBC Alternate Base Rate for such
day. Such interest shall be payable quarterly in arrears on the last day of
each March, June, September and December and on the Revolving Termination Date.
Any overdue principal of and overdue interest on any CIBC Alternate Base Rate
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to 2% plus the rate otherwise applicable thereto for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a rate
per annum equal to the sum of the Applicable Margin plus the applicable Adjusted
London Interbank Offered Rate. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof. Any overdue
principal of and overdue interest on any Euro-Dollar Loan shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the
greater of (i) 2% plus the CIBC Alternate Base Rate for such day and (ii) 2%
plus the rate otherwise applicable thereto for such day.
(c) The Administrative Agent shall determine each interest rate
applicable to the Revolving Loans hereunder. The Administrative Agent shall
give prompt notice to the Borrower and the Banks by facsimile transmission of
each rate of interest so determined, and its determination thereof shall be
conclusive in the absence of manifest error.
(d) The Euro-Dollar Reference Bank agrees to use its best efforts to
furnish quotations to the Administrative Agent as contemplated hereby. If the
Euro-Dollar Reference Bank does not furnish a timely quotation, the
Administrative Agent shall
<PAGE> 28
forthwith give notice thereof to the Borrower and the Banks, whereupon until the
Administrative Agent notifies the Borrower that such quotations are available on
a timely basis, the obligation of the Banks to make Euro-Dollar Loans shall be
suspended.
(e) Notwithstanding the foregoing provisions of this Section 2.4, if
at any time the rate of interest set forth above on any Loan of any Bank exceeds
the maximum non-usurious interest rate permissible for such Bank to charge
commercial borrowers under applicable law (the "Maximum Rate") for such Bank,
the rate of interest charged on such Loan of such Bank hereunder shall be
limited to the Maximum Rate for such Bank.
In the event any Bank ever receives, collects or applies as interest
any sum in excess of the Maximum Rate for such Bank, such excess amount shall be
applied to the reduction of the principal balance of its Loans or to other
amounts (other than interest) payable hereunder, and if no such principal is
then outstanding, such excess or part thereof remaining shall be paid to the
Borrower.
SECTION 2.5 Commitment Fees. The Borrower shall pay to the
Administrative Agent for the account of each Bank a commitment fee for the
period from and including the Closing Date to but not including the Revolving
Termination Date calculated at a rate per annum equal to the Commitment Fee Rate
in effect for the period in respect of which payment is to be made on such
Bank's average daily excess, if any, of such Bank's Revolving Commitment over
such Bank's Aggregate Outstanding Revolving Extensions of Credit during the
period for which such payment is to be made. Such commitment fee shall be
payable quarterly in arrears on the last day of each March, June, September and
December of each calendar year during the Revolving Credit Period and on the
Revolving Termination Date.
SECTION 2.6 Optional Termination or Reduction of Commitments. The
Borrower may, at any time subsequent to the Closing Date, upon at least three
Domestic Business Days' notice to the Administrative Agent, terminate at any
time, or proportionately reduce from time to time by an aggregate amount of
$5,000,000 or any integral multiple of $1,000,000 in excess thereof, the unused
portions of the Revolving Commitments. Any such partial reduction shall be
deemed to adjust the table in Section 2.3(b) by reducing all remaining Revolving
Commitment reductions on a pro rata basis. If the Revolving Commitments are
terminated in their entirety, all applicable accrued commitment fees and Letter
of Credit fees shall be payable on the effective date of such termination.
<PAGE> 29
SECTION 2.7 Mandatory Termination or Reduction of Commitments and
Mandatory Prepayments.
(a) The Revolving Commitments shall terminate on the Revolving
Termination Date, and any Revolving Loans then outstanding (together with
accrued interest thereon) shall be due and payable on such date.
(b) Unless otherwise agreed to in writing by the Required Banks (or
all of the Banks in the case of any disposition of assets described in clause
(vii) of Section 11.5) or otherwise provided herein, upon the receipt by the
Borrower of any Net Cash Proceeds from the sale, lease or other disposition of
any of its assets permitted under Section 8.11 (other than (i) the sale of
inventory in the ordinary course of business, (ii) the sale or lease of assets
subject to the Lien granted to Prudential pursuant to the documentation relating
to the Prudential Real Estate Financing solely to the extent that the Net Cash
Proceeds thereof are applied to repay the Prudential Real Estate Financing,
(iii) transfers or sales of accounts pursuant to any customer sales charge
program of the type described in Section 8.18, (iv) Permitted Pad Sales and (v)
sales of the Sioux Falls (store number 216), Fargo (store number 213) and St.
Cloud (store number 257) properties), the Revolving Commitments shall be deemed
to be automatically and permanently reduced in an amount equal to 75% of any
such Net Cash Proceeds, such reduction to be applied on a pro rata basis to the
then remaining scheduled Revolving Commitment reductions set forth in Section
2.3(b) but, in the case of any fiscal year, only if and to the extent that the
aggregate amount of such Net Cash Proceeds received in any fiscal year shall
exceed $5,000,000.
(c) The Borrower shall, from time to time until payment in full of
the Loans and the termination of this Agreement, within 10 days following the
receipt by the Borrower (or by the Administrative Agent as loss payee) of any
payment of proceeds of any insurance (other than business interruption
insurance) required to be maintained pursuant to this Agreement on account of
each separate loss, damage or injury in excess of $1,000,000 to any tangible
property of the Borrower or any Subsidiary (unless no Default or Event of
Default shall have occurred and be continuing and such proceeds (or any portion
thereof) shall have been expended or irrevocably committed by the Borrower for
the repair or replacement of such property and the Borrower shall have furnished
to the Administrative Agent evidence satisfactory to the Administrative Agent of
such expenditure or commitment), apply, or, to the extent the Administrative
Agent is loss payee under any insurance policy, irrevocably direct the
Administrative Agent to apply, an amount equal to 100% (or such lesser
percentage which represents that portion of such proceeds not expended or
committed pursuant to the immediately preceding parenthetical phrase) of such
insurance proceeds to the reduction of the Revolving Commitments, such reduction
to be applied on a pro rata basis to the then remaining
<PAGE> 30
scheduled Revolving Commitment reductions set forth in Section 2.3(b) above,
provided that, with respect to tangible property subject to any Lien permitted
herein, no such Revolving Commitment reduction would be required to the extent
that Section 2.7(d) would require an application of insurance proceeds that
would violate or breach any of the provisions of the instruments or documents
under which the prior Lien arises.
(d) On any day on which the sum of (i) the Aggregate Outstanding
Revolving Extensions of Credit and (ii) the aggregate outstanding Money Market
Loans exceeds the Revolving Commitments then in effect, the Borrower shall first
prepay the Revolving Loans in an aggregate amount equal to such excess and
second, if any amount remains, apply such amount to cash collateralize the L/C
Obligations in a manner reasonably satisfactory to the Letter of Credit Bank and
the Administrative Agent.
(e) Each prepayment of the Loans pursuant to this Section 2.7 shall be
accompanied by payment of accrued and unpaid interest on the amount prepaid and
any amounts payable pursuant to Section 5.5, except that accrued and unpaid
interest on CIBC Alternate Base Rate Loans shall be payable on the next interest
payment date under Section 2.4(a) to occur after the date of such prepayment;
provided that no additional interest shall accrue on such accrued and unpaid
interest on such CIBC Alternate Base Rate Loans during the period from the date
of such prepayment to such next interest payment date.
SECTION 2.8 Optional Prepayments. (a) The Borrower may, upon at
least one Domestic Business Days' written notice to the Administrative Agent,
prepay any CIBC Alternate Base Rate Borrowing in whole at any time, or from time
to time in part in amounts aggregating $5,000,000 or any larger multiple of
$1,000,000. Accrued and unpaid interest on the amount of any such prepayment
shall be payable on the next interest payment date under Section 2.4(a) to occur
after the date of such prepayment; provided that no additional interest shall
accrue on such accrued and unpaid interest during the period from the date of
such prepayment to such next interest payment date. Each such optional
prepayment shall be applied to prepay ratably the CIBC Alternate Base Rate Loans
of the several Banks included in such Borrowing.
(b) The Borrower may, upon at least three Euro-Dollar Business Days'
written notice to the Administrative Agent, prepay any Euro-Dollar Borrowing in
whole at any time, or from time to time in part in amounts aggregating
$5,000,000 or any larger multiple of $1,000,000, by paying the principal amount
to be prepaid together with accrued interest thereon to the date of prepayment
and any amounts payable pursuant to Section 5.5. Each such optional prepayment
shall be applied to prepay ratably the Euro-Dollar Loans of the several Banks
included in such Euro-Dollar Borrowing. Within two Euro-Dollar Business Days
after receipt by the Administrative Agent of a notice of prepayment
<PAGE> 31
pursuant to this subsection (b), the Administrative Agent shall notify the
Borrower of the estimated loss or expense that may be incurred by the Banks and
be required to be paid by the Borrower under Section 5.5 as a result of the
prepayment of such Euro-Dollar Borrowing prior to the last day of the Interest
Period therefor. The Borrower may, after having been notified by the
Administrative Agent of the estimated loss or cost resulting from such
prepayment and not later than two Euro-Dollar Business Days prior to the
intended date of such prepayment stated in the notice of prepayment relating
thereto, notify the Administrative Agent in writing that the Borrower desires to
revoke such notice of prepayment. If the Borrower shall have failed to notify
the Administrative Agent, not later than two Euro-Dollar Business Days prior to
the intended date of such prepayment, that the Borrower desires to revoke its
notice of prepayment of all or part of such Borrowing, then such notice of
prepayment shall become irrevocable. The Borrower agrees that the calculation
of such loss or expense is only an estimate and shall not be binding on the
Administrative Agent or any of the Banks.
(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's ratable share of such prepayment, and, except as provided in
subsection (b) above, such notice shall not thereafter be revocable by the
Borrower. Each Bank shall promptly after receiving any such notice of
prepayment with respect to a Euro-Dollar Borrowing, cooperate with the
Administrative Agent to estimate the loss or cost that may be incurred by such
Bank as a result of the prepayment of its Loan comprising such Borrowing.
SECTION 2.9 Conversion and Continuation Options. (a) The Borrower
may elect from time to time to convert Euro-Dollar Loans to CIBC Alternate Base
Rate Loans by giving the Administrative Agent irrevocable written notice,
substantially in the form of Exhibit O, of such election prior to 11:00 A.M.,
New York City time, on the day which is one Domestic Business Day prior to the
date of such conversion, provided that any such conversion of Euro-Dollar Loans
may only be made on the last day of an Interest Period with respect thereto.
The Borrower may elect from time to time to convert CIBC Alternate Base Rate
Loans to Euro-Dollar Loans by giving the Administrative Agent irrevocable notice
of such election prior to 11:00 A.M., New York City time, on the day which is
three Eurodollar Business Days prior to the date of such conversion. Any such
notice of conversion to Euro-Dollar Loans shall specify the length of the
initial Interest Period or Interest Periods therefor. Upon receipt of any such
notice the Administrative Agent shall promptly notify each Bank thereof. All or
any part of outstanding Euro-Dollar Loans and CIBC Alternate Base Rate Loans may
be converted as provided herein, provided that (i) no Loan may be converted into
a Euro-Dollar Loan when any Default or Event of Default has occurred and is
continuing and the Administrative Agent or the Required Banks have determined
that
<PAGE> 32
such a conversion is not appropriate, (ii) any such conversion may only be made
if, after giving effect thereto, Section 2.10 shall not have been contravened
and (iii) no Loan may be converted into a Euro-Dollar Loan after the date that
is one month prior to the Revolving Termination Date.
(b) Any Euro-Dollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan may be continued as such (i) when any Default or Event
of Default has occurred and is continuing and the Administrative Agent or the
Required Banks have determined that such a continuation is not appropriate, (ii)
if, after giving effect thereto, Section 2.10 would be contravened or (iii)
after the date that is one month prior to the Revolving Termination Date and
provided, further, that if the Borrower shall fail to give any required notice
as described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
CIBC Alternate Base Rate Loans on the last day of such then expiring Interest
Period.
SECTION 2.10. Minimum Amount and Maximum Number of Euro-Dollar
Borrowings. All Borrowings, conversions and continuations of Loans hereunder
and all selections of Interest Periods hereunder shall be in such amounts and be
made pursuant to such elections so that, after giving effect thereto, (i) the
aggregate principal amount of the Loans comprising each Euro-Dollar Borrowing
shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof
and (ii) the total number of such Euro-Dollar Borrowings at any one time would
not exceed ten.
SECTION 3 LETTERS OF CREDIT
SECTION 3.1 L/C Commitment. (a) Subject to the terms and conditions
hereof, the Letter of Credit Bank, in reliance on the agreements of the other
Banks set forth in Section 3.4(a), agrees to issue letters of credit ("Letters
of Credit") for the account of the Borrower on any Domestic Business Day during
the Revolving Credit Period in such form as may be approved from time to time by
the Letter of Credit Bank; provided that the Letter of Credit Bank shall not,
and shall have no obligation to, issue any Letter of Credit if, after giving
effect to such issuance and to the obligations of the Banks under Section
3.4(a), the excess, if any, of (i) the Available Revolving Commitment of any
Bank over (ii) an amount equal to such Bank's Revolving Commitment Percentage
multiplied by the aggregate principal amount of all the Money Market Loans of
all the Banks then outstanding would be less than zero; and provided, further,
that the Letter of Credit Bank shall not, and shall have
<PAGE> 33
no obligation to, issue any Letter of Credit if, (i) after giving effect
thereto, the L/C Obligations would exceed $25,000,000 or (ii) on or before the
date immediately preceding the issuance date, the Letter of Credit Bank shall
have received a notice of Default, which has not been withdrawn, from any Bank.
Each Letter of Credit shall (i) be denominated in Dollars and shall be a standby
letter of credit issued to support obligations of the Borrower or any of its
Subsidiaries and (ii) expire no later than the earlier of the date which is one
year after the date of issuance thereof and the Revolving Termination Date
(provided that such Letter of Credit may provide that it may be extended with
the consent of the Letter of Credit Bank for a period of no more than one year
(but in no event beyond the Revolving Termination Date)).
(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the jurisdiction in
which is located the office of the Letter of Credit Bank.
(c) The Letter of Credit Bank shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause such Letter of Credit Bank or any L/C Participant to exceed any limits
imposed by, any applicable Requirement of Law.
(d) Each Bank severally agrees that, on the Closing Date, the letters
of credit outstanding on such date set forth in Schedule II hereof shall be
deemed to be Letters of Credit under this Agreement for all purposes hereof,
provided that all fees and interest on such outstanding letters of credit
accruing to but not including the Closing Date shall be paid on such date.
SECTION 3.2 Procedure for Issuance of Letters of Credit. The
Borrower may from time to time request that the Letter of Credit Bank issue a
Letter of Credit by delivering to the Letter of Credit Bank at its address for
notices specified herein an Application therefor, completed to the satisfaction
of the Letter of Credit Bank (which completion may occur by means of any
electronic system operated by the Letter of Credit Bank), and such other
certificates, documents and other papers and information as the Letter of Credit
Bank may request. Upon receipt of any Application, the Letter of Credit Bank
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures, subject to the terms and conditions hereof, and shall,
subject to the terms and conditions hereof, promptly issue the Letter of Credit
requested thereby (but in no event shall the Letter of Credit Bank (unless it
otherwise agrees) be required to issue any Letter of Credit earlier than two
Domestic Business Days after its receipt of the Application therefor and all
such other certificates, documents and other papers and information relating
thereto) by issuing the original of such Letter of Credit to the
<PAGE> 34
beneficiary thereof or as otherwise may be agreed by the Letter of Credit Bank
and the Borrower. The Letter of Credit Bank shall furnish a copy of such Letter
of Credit to the Borrower promptly following the issuance thereof. The Letter
of Credit Bank will periodically (but in any event no less often than quarterly)
report to the Administrative Agent Letter of Credit issuance activity, and the
Administrative Agent will periodically (but in any event no less often than
quarterly) report to the Banks Letter of Credit issuance activity.
SECTION 3.3. Fees, and Other Charges. (a) The Borrower shall pay to
the Administrative Agent, for the account of the Banks, a fee with respect to
the Letters of Credit in an amount calculated on the L/C Obligations from time
to time outstanding during each period for which payment is made at a rate per
annum equal to the L/C Rate then in effect. Such fee shall be shared ratably
among the Banks in accordance with their respective Revolving Commitment
Percentages, shall be payable in arrears on each L/C Fee Payment Date,
commencing on the first of such days to occur after the date hereof, and shall
be nonrefundable.
(b) In addition to the foregoing fees and commissions, the Borrower
shall also pay to the Letter of Credit Bank for its sole benefit (i) such
customary fees, costs and expenses in connection with the Letters of Credit as
may be separately agreed to between such Letter of Credit Bank and the Borrower
and (ii) a fronting fee calculated at the rate of 1/8 of 1% per annum on the L/C
Obligations from time to time outstanding during each period for which payment
is made. Such fronting fee shall be payable in arrears on each L/C Fee Payment
Date, commencing on the first of such days to occur after the date hereof, and
shall be nonrefundable.
(c) The Administrative Agent shall, promptly following its receipt
thereof, distribute to the Letter of Credit Bank and the L/C Participants all
fees received by the Administrative Agent for their respective accounts pursuant
to this Section 3.3.
SECTION 3.4. L/C Participation. (a) The Letter of Credit Bank
irrevocably agrees to grant and hereby grants to each L/C Participant, and, to
induce the Letter of Credit Bank to issue Letters of Credit hereunder, each L/C
Participant irrevocably severally agrees to accept and purchase and hereby
severally accepts and purchases from the Letter of Credit Bank, on the terms and
conditions hereinafter stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's Revolving Commitment
Percentage in the Letter of Credit Bank's obligations and rights under each
Letter of Credit issued hereunder by the Letter of Credit Bank and under each
time draft accepted pursuant to any Letter of Credit and the amount of each
draft paid by the Letter of Credit Bank thereunder. Each L/C Participant
unconditionally and irrevocably severally agrees with each Letter of Credit Bank
that, if a draft
<PAGE> 35
is paid under any Letter of Credit for which the Letter of Credit Bank is not
reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Administrative Agent, for the
account of the Letter of Credit Bank, upon demand at the Administrative Agent's
address for notices specified herein an amount equal to such L/C Participant's
Revolving Commitment Percentage of the amount of such draft, or any part
thereof, which is not so reimbursed; such amount shall be due on the Domestic
Business Day upon which such demand shall be given, if such demand is given at
or before 1:00 P.M. (New York City time) on such day and, if such demand shall
be given later than such time, such amount shall be due on the next succeeding
Domestic Business Day. The Administrative Agent shall promptly pay over to the
Letter of Credit Bank all amounts so received by it.
(b) If any amount required to be paid by any L/C Participant to the
Letter of Credit Bank pursuant to Section 3.4(a) in respect of any unreimbursed
portion of any payment made by the Letter of Credit Bank under any Letter of
Credit is paid to the Administrative Agent for the account of the Letter of
Credit Bank within three Domestic Business Days after the date such payment is
due, such L/C Participant shall pay to the Letter of Credit Bank on demand an
amount equal to the product of (1) such amount, times (2) the daily average
Federal Funds Rate during the period from and including the date such payment is
required to the date on which such payment is immediately available to the
Letter of Credit Bank, times (3) a fraction the numerator of which is the number
of days that elapse during such period and the denominator of which is 360. If
any such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not in fact made available to the Administrative Agent for the account
of the Letter of Credit Bank by such L/C Participant within three Domestic
Business Days after the date such payment is due, the Letter of Credit Bank
shall be entitled to recover from such L/C Participant, on demand, such amount
with interest thereon calculated from such due date at the rate per annum then
applicable to CIBC Alternate Base Rate Loans hereunder. A certificate of the
Letter of Credit Bank submitted to any L/C Participant with respect to any
amounts owing under this Section shall be conclusive in the absence of manifest
error.
(c) Whenever, at any time after the Letter of Credit Bank has made
payment under any Letter of Credit or any time draft drawn thereunder and has
received from any L/C Participant its pro rata share of such payment in
accordance with Section 3.4(a), the Letter of Credit Bank receives any payment
related to the Letter of Credit (whether directly from the Borrower or
otherwise, including proceeds of collateral applied thereto by the
Administrative Agent or the Letter of Credit Bank), or any payment of interest
on account thereof, the Letter of Credit Bank will distribute to such L/C
Participant its pro rata share thereof; provided, however, that in the event
that any such
<PAGE> 36
payment received by the Letter of Credit Bank shall be required to be returned
by the Letter of Credit Bank, such L/C Participant shall return to the Letter of
Credit Bank the portion thereof previously distributed by the Letter of Credit
Bank to it.
SECTION 3.5. Reimbursement Obligation of the Borrower. The Borrower
agrees to reimburse the Letter of Credit Bank, on each date on which the Letter
of Credit Bank notifies the Borrower of the date and amount of a payment by the
Letter of Credit Bank of a draft presented under a Letter of Credit (whether a
sight draft or time draft), for the amount of (a) such draft so paid and (b) any
taxes, fees, charges or other costs or expenses incurred by the Letter of Credit
Bank in connection with such payment. Each such payment shall be made to the
Letter of Credit Bank at its address for notices specified herein in lawful
money of the United States of America and in immediately available funds.
Interest shall be payable on any and all amounts remaining unpaid by the
Borrower under this Section from the date such amounts become payable (whether
at stated maturity, by acceleration or otherwise) until payment in full at the
rate which would be payable on any outstanding CIBC Alternate Base Rate Loans
which were then overdue.
SECTION 3.6. Obligations Absolute. The Borrower's obligations under
this Section 3 shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which the Borrower may have or have had against the Letter of Credit
Bank, any Bank or any beneficiary of a Letter of Credit. The Borrower also
agrees with the Letter of Credit Bank and the Banks that neither the Letter of
Credit Bank nor any Bank shall be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though the documents shall in fact prove to be invalid, fraudulent
or forged, or any dispute between or among the Borrower and any beneficiary of
any Letter of Credit or any other party to which the Letter of Credit may be
transferred or any claims whatsoever of the Borrower against any beneficiary of
the Letter of Credit or any such transferee. The Letter of Credit Bank shall
not be liable for any error, omission, interruption or delay in transmission,
dispatch or delivery of any message or advice, however transmitted, in
connection with any Letter of Credit, except for errors or omissions caused by
the Letter of Credit Bank's gross negligence or willful misconduct. The
Borrower agrees that any action taken or omitted by the Letter of Credit Bank
under or in connection with any Letter of Credit or the related drafts or
documents, if done in the absence of gross negligence or willful misconduct and
in accordance with the standards of care specified in the Uniform Commercial
Code of the jurisdiction in which is located the office of the issuer thereof
from which such Letter of Credit is issued, shall be binding on the Borrower and
shall not result in any liability of the Letter of Credit Bank to the Borrower.
<PAGE> 37
SECTION 3.7. Letter of Credit Payments. If any draft shall be
presented for payment under any Letter of Credit, the Letter of Credit Bank
shall promptly notify the Borrower of the date and amount thereof. The
responsibility of the Letter of Credit Bank to the Borrower in connection with
any draft presented to it for payment under any Letter of Credit shall, in
addition to any payment obligation expressly provided for in such Letter of
Credit, be limited to determining that the documents (including each draft)
delivered under such Letter of Credit in connection with such presentment are in
conformity with such Letter of Credit.
SECTION 3.8. Application. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Agreement, the provisions of this Agreement shall apply.
SECTION 3.9. Indemnification. Each Bank shall, ratably in accordance
with its Revolving Commitment Percentage, indemnify the Letter of Credit Bank
(to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so) against any cost, expense (including
counsel fees of outside and in-house counsel and disbursements), claim, demand,
action, loss, damage, penalty, judgment, disbursement or liability (except such
as result from the Letter of Credit Bank's gross negligence or willful
misconduct) that the Letter of Credit Bank may suffer or incur in connection
with the issuance of any Letter of Credit under this Agreement or any action
taken or omitted by the Letter of Credit Bank hereunder. The agreements in this
Section shall survive the payment of the Notes and all other amounts payable
hereunder.
SECTION 4. MONEY MARKET LOANS
SECTION 4.1. The Money Market Loans. Subject to the terms and
conditions of this Agreement, the Borrower may borrow Money Market Loans from
time to time during the Money Market Loan Commitment Period on any Domestic
Business Day (in the case of Money Market Loans made pursuant to an Absolute
Rate Money Market Loan Request) or any Euro-Dollar Business Day (in the case of
Money Market Loans made pursuant to an Index Rate Money Market Loan Request).
Money Market Loans shall be borrowed in amounts such that the sum of (i) the
Aggregate Outstanding Extensions of Revolving Credit of all the Banks and (ii)
the aggregate outstanding principal amount of all Money Market Loans of all the
Banks shall not at any time exceed the aggregate Revolving Commitments of all
the Banks at such time; provided that the sum of (i) the Aggregate Outstanding
Extensions of Revolving Credit of any Bank and (ii) an amount equal to such
Bank's Revolving Commitment Percentage multiplied by the aggregate outstanding
principal amount of all Money Market Loans made by all the Banks shall not at
any time exceed such Bank's Revolving Commitment at such time. Within the
limits and on the conditions hereinafter
<PAGE> 38
set forth with respect to Money Market Loans, the Borrower from time to time may
borrow, repay and reborrow Money Market Loans.
SECTION 4.2 Procedure for Money Market Loan Borrowing. (a) The
Borrower shall request Money Market Loans by delivering a Money Market Loan
Request to the Administrative Agent, not later than 12:00 Noon (New York City
time) four Euro-Dollar Business Days prior to the proposed Borrowing Date (in
the case of an Index Rate Money Market Loan Request), and not later than 10:00
A.M. (New York City time) one Domestic Business Day prior to the proposed
Borrowing Date (in the case of an Absolute Rate Money Market Loan Request).
Each Money Market Loan Request may solicit bids for Money Market Loans in an
aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000
in excess thereof and having not more than four alternative maturity dates. The
maturity date for each Money Market Loan shall be not less than 7 days nor more
than 180 days after the Borrowing Date therefor (and in any event shall be not
later than the Revolving Termination Date). The Administrative Agent shall
notify each Bank promptly by facsimile transmission of the contents of each
Money Market Loan Request received by the Administrative Agent.
(b) In the case of an Index Rate Money Market Loan Request, upon
receipt of notice from the Administrative Agent of the contents of such Money
Market Loan Request, each Bank may elect, in its sole discretion, to offer
irrevocably to make one or more Money Market Loans at the Applicable Index Rate
plus or minus a margin determined by such Bank in its sole discretion for each
such Money Market Loan. Any such irrevocable offer shall be made by delivering
a Money Market Loan Offer to the Administrative Agent, before 10:00 A.M. (New
York City time) on the day that is three Euro-Dollar Business Days before the
proposed Borrowing Date, setting forth:
(1) the maximum amount of Money Market Loans for each maturity date
and the aggregate maximum amount of Money Market Loans for all maturity
dates which such Bank would be willing to make (which amounts may, subject
to subsection 4.1, exceed such Bank's Revolving Commitment); and
(2) the margin above or below the Applicable Index Rate at which such
Bank is willing to make each such Money Market Loan.
The Administrative Agent shall advise the Borrower promptly but no later than
10:30 A.M. (New York City time) on the date which is three Euro-Dollar Business
Days before the proposed Borrowing Date of the contents of each such Money
Market Loan Offer received by it. If the Administrative Agent, in its capacity
as a Bank, shall elect, in its sole discretion, to make any such Money Market
Loan Offer, it shall advise the Borrower of the contents of its Money Market
Loan Offer before 9:45 A.M. (New York City time) on the date which is three
Euro-Dollar Business Days before the proposed Borrowing Date.
<PAGE> 39
(c) In the case of an Absolute Rate Money Market Loan Request, upon
receipt of notice from the Administrative Agent of the contents of such Money
Market Loan Request, each Bank may elect, in its sole discretion, to offer
irrevocably to make one or more Money Market Loans at a rate of interest
determined by such Bank in its sole discretion for each such Money Market Loan.
Any such irrevocable offer shall be made by delivering a Money Market Loan Offer
to the Administrative Agent before 10:00 A.M. (New York City time) on the
proposed Borrowing Date, setting forth:
(1) the maximum amount of Money Market Loans for each maturity date,
and the aggregate maximum amount for all maturity dates, which such Bank
would be willing to make (which amounts may, subject to Section 4.1, exceed
such Bank's Revolving Commitment); and
(2) the fixed rate of interest at which such Bank is willing to make
each such Money Market Loan.
The Administrative Agent shall advise the Borrower promptly but in no event
later than 10:30 A.M. (New York City time) on the proposed Borrowing Date of the
contents of each such Money Market Loan Offer received by it. If the
Administrative Agent, in its capacity as a Bank, shall elect, in its sole
discretion, to make any such Money Market Loan Offer, it shall advise the
Borrower of the contents of its Money Market Loan Offer before 9:45 A.M. (New
York City time) on the proposed Borrowing Date.
(d) Before 12:00 noon (New York City time) three Euro-Dollar Business
Days before the proposed Borrowing Date (in the case of Money Market Loans
requested by an Index Rate Money Market Loan Request) and before 11:00 A.M. (New
York City time) on the proposed Borrowing Date (in the case of Money Market
Loans requested by an Absolute Rate Money Market Loan Request), the Borrower, in
its absolute discretion, shall:
(1) cancel such Money Market Loan Request by giving the
Administrative Agent telephone notice to that effect, or
(2) by giving telephone notice to the Administrative Agent
(immediately confirmed by delivery to the Administrative Agent of a Money
Market Loan Confirmation in writing or by fax transmission), (i) subject to
the provisions of Section 4.2(e), accept one or more of the offers made by
any Bank or Banks pursuant to Section 4.2(b) or Section 4.2(c), as the case
may be, of the amount of Money Market Loans for each relevant maturity date
and (ii) reject any remaining offers made by Banks pursuant to Section
4.2(b) or Section 4.2(c), as the case may be.
<PAGE> 40
If the Borrower fails to give any such notice prior to such time, such Money
Market Loan Request shall be deemed to have been canceled.
(e) The Borrower's acceptance of Money Market Loans in response to
any Money Market Loan Request shall be subject to the following limitations:
(1) The principal amount of Money Market Loans accepted for each
maturity date specified by any Bank in its Money Market Loan Offer shall
not exceed the maximum amount for such maturity date specified in such
Money Market Loan Offer;
(2) the aggregate principal amount of Money Market Loans accepted for
all maturity dates specified by any Bank in its Money Market Loan Offer
shall not exceed the aggregate maximum amount specified in such Money
Market Loan Offer for all such maturity dates;
(3) the Borrower may not accept offers for Money Market Loans for any
maturity date in an aggregate principal amount in excess of the maximum
principal amount requested in the related Money Market Loan Request;
(4) if the Borrower accepts any of such offers, it must accept offers
based solely upon pricing for such relevant maturity date and upon no other
criteria whatsoever; and
(5) if two or more Banks submit offers for any maturity date at
identical pricing and the Borrower accepts any of such offers but does not
wish to (or by reason of the limitations set forth in Section 4.1 or in
clause (3) of this Section 4.2(e), cannot) borrow the total amount offered
by such Banks with such identical pricing, the Borrower shall accept offers
from all of such Bank in amounts allocated among them pro rata according to
the amounts offered by such Banks (or as nearly pro rata as shall be
practicable after giving effect to the requirement that Money Market Loans
made by a Bank on a Borrowing Date for each relevant maturity date shall be
in a principal amount of $5,000,000 or an integral multiple of $1,000,000
in excess thereof).
If the bids are either unacceptably high to the Borrower or are insufficient in
amount, the Borrower may cancel the auction.
(f) If the Borrower notifies the Administrative Agent that a Money
Market Loan Request is canceled pursuant to Section 4.2(d)(1), the
Administrative Agent shall give prompt telephone notice thereof to the Banks.
<PAGE> 41
(g) If the Borrower accepts pursuant to Section 4.2(d)(2) one or more
of the offers made by any Bank or Banks, the Administrative Agent promptly shall
notify each Bank which has made such a Money Market Loan Offer of (i) the
aggregate amount of such Money Market Loans to be made on such Borrowing Date
for each maturity date and (ii) the acceptance or rejection of any offers to
make such Money Market Loans made by such Bank. Before 12:00 Noon (New York
City time) on the Borrowing Date specified in the applicable Money Market Loan
Request, each Bank whose Money Market Loan Offer has been accepted shall make
available to the Administrative Agent at its office set forth in Section 11.1
the amount of Money Market Loans to be made by such Bank, in immediately
available funds. The Administrative Agent will make such funds available to the
Borrower as soon as practicable on such date at the Administrative Agent's
aforesaid address. As soon as practicable after each Borrowing Date, the
Administrative Agent shall notify each Bank of the aggregate amount of Money
Market Loans advanced on such Borrowing Date and the respective maturity dates
thereof.
SECTION 4.3. Money Market Loan Payments. (a) The Borrower shall
repay to the Administrative Agent for the account of each Bank which has made a
Money Market Loan (or the Money Market Loan Assignee in respect thereof, as the
case may be) on the applicable Money Market Loan Maturity Date the then unpaid
principal amount of such Money Market Loan. The Borrower shall not have the
right to prepay any principal amount of any Money Market Loan.
(b) The Borrower shall pay interest on the unpaid principal amount of
each Money Market Loan from the Borrowing Date to the applicable Money Market
Loan Maturity Date at the rate of interest specified in the Money Market Loan
Offer accepted by the Borrower in connection with such Money Market Loan
(calculated on the basis of a 360-day year for actual days elapsed), payable on
each applicable Money Market Loan Interest Payment Date.
(c) If all or a portion of the principal amount of any Money Market
Loan shall not be paid when due (whether at the stated maturity, by acceleration
or otherwise), such overdue principal amount shall, without limiting any rights
of any Bank under this Agreement, bear interest from the date on which such
payment was due at a rate per annum which is 2% above the rate which would
otherwise be applicable pursuant to the Money Market Loan Note evidencing such
Money Market Loan until the stated maturity date of such Money Market Loan, and
for each day thereafter at a rate per annum which is 2% above the CIBC Alternate
Base Rate, in each case until paid in full (as well after as before judgment).
SECTION 4.4. Money Market Loan Notes. (a) The Money Market Loans
made by each Bank shall be evidenced initially by a promissory note of the
Borrower, substantially in the form of
<PAGE> 42
Exhibit B-1 with appropriate insertions (a "Grid Money Market Loan Note"),
payable to the order of such Bank and representing the obligation of the
Borrower to pay the unpaid principal amount of all Money Market Loans made by
such Bank, with interest on the unpaid principal amount from time to time
outstanding of each Money Market Loan evidenced thereby as prescribed in Section
4.3(b). Each Bank is hereby authorized to record the date and amount of each
Money Market Loan made by such Bank, the maturity date thereof, the date and
amount of each payment of principal thereof and the interest rate with respect
thereto on the schedule annexed to and constituting part of its Grid Money
Market Loan Note, and any such recordation shall constitute prima facie evidence
of the accuracy of the information so recorded; provided, however, that the
failure to make any such recordation shall not affect the obligations of the
Borrower hereunder or under any Grid Money Market Loan Note. Each Grid Money
Market Loan Note shall be dated the Closing Date and each Money Market Loan
evidenced thereby shall bear interest for the period from and including the
Borrowing Date of such Money Market Loan on the unpaid principal amount thereof
from time to time outstanding at the applicable rate per annum determined as
provided in, and such interest shall be payable as specified in, Section 4.3(b).
(b) All Money Market Loans advanced by a Bank on a Borrowing Date
which have the same maturity date and interest rate shall be deemed to
constitute one Money Market Loan so long as such amounts remain evidenced by the
Grid Money Market Loan Note of such Bank. Any Bank that wishes such amounts to
constitute more than one Money Market Loan and to have each such Money Market
Loan evidenced by a separate promissory note payable to such Bank, substantially
in the form of Exhibit B-2 (an "Individual Money Market Loan Note") with
appropriate insertions as to Borrowing Date, principal amount and interest rate,
shall notify the Administrative Agent and the Borrower by facsimile transmission
of the respective principal amounts of the Money Market Loans to be evidenced by
each such Individual Money Market Loan Note, which principal amount shall not be
less than $5,000,000 for any Individual Money Market Loan Note. Not later than
three Business Days after receipt of such notice, the Borrower shall deliver to
such Bank an Individual Money Market Loan Note payable to the order of such Bank
in the principal amount of each such Money Market Loan and otherwise conforming
to the requirements of this Agreement. Upon receipt of such Individual Money
Market Loan Note, such Bank shall endorse on the Schedule attached to its Grid
Money Market Loan Note the transfer of such Money Market Loan from such Grid
Money Market Loan Note to such Individual Money Market Loan Note.
SECTION 5. GENERAL CREDIT PROVISIONS
SECTION 5. General Provisions as to Payments. The Borrower shall
make each payment of principal of, and interest on, the Loans, of Reimbursement
Obligations, of commitment fees
<PAGE> 43
and letter of credit commissions and of all other amounts payable hereunder not
later than 11:00 A.M. (New York City time) on the date when due, in Federal or
other funds immediately available in New York City, to the Administrative Agent
at its address referred to in Section 11.1; provided, that in the case of
payments made with respect to Money Market Loans, such payments shall be made
directly to the Bank or Banks making such Money Market Loans at the address
specified for such Bank or Banks in Schedule I hereto. Any such payments which
are made later than 11:00 A.M. (New York City time) shall be deemed to have been
made on the next Domestic Business Day or Euro-Dollar Business Day, as the case
may be. The Administrative Agent will promptly distribute to each Bank its pro
rata share of each such payment (other than payments in respect of Money Market
Loans, which shall be made to the Bank or Banks that made such Money Market
Loans only) received by the Administrative Agent for the account of the Banks.
Whenever any payment of principal of, or interest on, the CIBC Alternate Base
Rate Loans or any Absolute Rate Money Market Loans, of Reimbursement Obligations
or of commitment fees and letter of credit commissions shall be due on a day
which is not a Domestic Business Day, the date for payment thereof shall be
extended to the next succeeding Domestic Business Day. Whenever any payment of
principal of, or interest on, the Euro-Dollar Loans or any Index Rate Money
Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the
date for payment thereof shall be extended to the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another calendar
month, in which case the date for payment thereof shall be the next preceding
Euro-Dollar Business Day. If the date for any payment of principal is extended
by operation of law or otherwise, interest thereon shall be payable for such
extended time.
SECTION 5.2. Computation of Interest, Commissions and Fees. Interest
payable by the Borrower on CIBC Alternate Base Rate Loans accruing interest at
the rate specified in clause (a) of the definition of "CIBC Alternate Base Rate"
and on commitment fees hereunder shall be computed on the basis of a year of 365
days (or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). Interest payable by the
Borrower on Euro-Dollar Loans, CIBC Alternate Base Rate Loans accruing interest
at the rate specified in clause (b) of the definition of "CIBC Alternate Base
Rate", Money Market Loans and letter of credit commissions shall be computed on
the basis of a year of 360 days and paid for the actual number of days elapsed
from and including the first day thereof to but excluding the last day thereof.
SECTION 5.3. Indemnification for Charges. (a) Except as provided in
the proviso to the second sentence of this paragraph (a), all payments made by
the Borrower hereunder and under any of the other Credit Documents shall be made
by the Borrower free and clear of, and without reduction for or on account of,
any present or future income, stamp or other taxes,
<PAGE> 44
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority excluding, in the case of the Administrative Agent and each Bank, net
income and franchise taxes imposed on the Administrative Agent and such Bank by
the jurisdiction under the laws of which the Administrative Agent or such Bank
is organized or any political subdivision or taxing authority thereof or therein
or by any jurisdiction in which such Bank's Lending Office is located or any
political subdivision or taxing authority thereof or therein (all such non-
excluded taxes, levies, imposts, deductions, charges or withholdings being
hereinafter called "Charges"). If any Charges are required to be withheld from
any amounts payable to the Administrative Agent or any Bank hereunder or under
the other Credit Documents, the amounts so payable to the Administrative Agent
or such Bank shall be increased to the extent necessary to yield to the
Administrative Agent or such Bank (after payment of all Charges) interest or any
other amounts payable hereunder or under the other Credit Documents at the rates
or in the amounts specified in this Agreement and the other Credit Documents;
provided, however, that in any case where a Bank fails to provide the forms or
other documents to the Borrower as required by paragraph (b) of this Section 5.3
or if the information contained therein is no longer accurate in any material
respect and the Borrower is, as a result of such failure or inaccuracy, required
to withhold Charges from a payment hereunder or under the other Credit Documents
in an amount greater than it would have been required to withhold if such Bank
had provided such required forms or other documents or if such information was
accurate, any additional sum payable under this sentence shall be computed as if
the Borrower had withheld such lesser amount unless the reason for such failure
to deliver such forms or other documents or the reason for such inaccuracy is a
change in United States federal income tax law (including any regulation or
amendment thereto, or official interpretation thereof, any modification or
revocation of an applicable tax treaty or any change in the official position
regarding the interpretation thereof) occurring after the date hereof. Whenever
any Charges are payable by the Borrower, as promptly as possible thereafter, the
Borrower shall send to the Administrative Agent for the account of such Bank, a
certified copy of an original official receipt received by the Borrower showing
payment thereof. If the Borrower fails to pay any Charges when due to the
appropriate taxing authority or fails to remit to the Administrative Agent the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Administrative Agent and the Banks for any incremental taxes,
interest or penalties that may become payable by the Administrative Agent or any
Bank as a result of any such failure.
(b) Each Bank that is not a United States Person as such term is
defined in s 7701(a)(30) of the Code (a "United States Person") shall complete
and deliver to the Borrower, prior to the date on which the first payment to
such Bank is due
<PAGE> 45
hereunder, a duly certified Internal Revenue Service Form 1001 in duplicate
claiming that it is entitled to complete exemption from United States
withholding tax under an income tax treaty to which the United States is a party
or a duly certified Internal Revenue Service Form 4224 in duplicate claiming
that the payments to be received under this Agreement are effectively connected
with the conduct of a trade or business of such Bank in the United States, as
appropriate. Each Bank further agrees to complete and deliver to the Borrower
from time to time any successor or additional form or certificate required by
the Internal Revenue Service in order to secure complete exemption from United
States withholding tax. If for any reason during the term of this Agreement, a
Bank becomes unable to submit the forms or certificate referred to above or the
information or representations contained therein is no longer accurate in any
material respect, such Bank shall notify the Administrative Agent and the
Borrower in writing to that effect.
(c) Each Bank agrees to use reasonable efforts (including reasonable
efforts to change its Lending Office) to avoid the imposition of any Charges on
payments hereunder or under other Credit Documents or to minimize any amounts
which might otherwise be payable pursuant to this Section 5.3; provided,
however, that such efforts shall not cause the imposition on such Bank of any
additional costs or legal or regulatory burden deemed by such Bank to be
material.
(d) If the Borrower makes any additional payment to any Bank pursuant
to this Section 5.3 in respect of any Charges, and such Bank determines that it
has received (i) a refund of such Charges or (ii) a credit against or relief or
remission for, or a reduction in the amount of, any tax or other governmental
charge solely as a result of any deduction or credit for any Charges with
respect to which it has received payments under this Section 5.3, such Bank
shall, to the extent that it can do so without prejudice to the retention of
such refund, credit, relief, remission or reduction, pay to the Borrower such
amount as such Bank shall have determined to be attributable to the deduction or
withholding of such Charges. If such Bank later determines that it was not
entitled to such refund, credit, relief, remission or reduction to the full
extent of any payment made pursuant to the first sentence of this Section
5.3(d), the Borrower shall upon demand of such Bank promptly repay the amount of
such overpayment. Any determination made by such Bank pursuant to this Section
5.3(d) shall in the absence of bad faith or manifest error be conclusive, and
nothing in this Section 5.3(d) shall be construed as requiring the Bank to
conduct its business or to arrange or alter in any respect its tax or financial
affairs so that it is entitled to receive such a refund, credit or reduction or
as allowing any Person to inspect any records, including tax returns, of any
Bank.
SECTION 5.4. Capital Adequacy. (a) If any Bank shall have
determined that the adoption after the date hereof of any
<PAGE> 46
applicable law, rule or regulation regarding capital adequacy, or any change
after the date hereof therein, or any change after the date hereof in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Lending Office) with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency made subsequent to the
date hereof, has or would have the effect of reducing the rate of return on such
Bank's capital as a consequence of its obligations hereunder to a level below
that which such Bank could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time, within 45 days after demand by such Bank (with a copy to the
Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such reduction.
(b) Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section 5.4. A certificate of any Bank claiming compensation under this Section
5.4 and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of manifest error. In determining
such amount, such Bank may use any reasonable averaging and attribution methods.
SECTION 5.5. Funding Losses. If the Borrower makes any payment of
principal with respect to any Euro-Dollar Loan or Index Rate Money Market Loan
(pursuant to Section 2.7, 2.8, 5.8, 9 or otherwise) on (i) any day other than
the last day of the Interest Period applicable thereto or (ii) on the last day
of any Interest Period which has been shortened by operation of clause (c) or
(d) of the definition of "Interest Period", or if the Borrower fails to borrow,
convert to or continue any Euro-Dollar Loan or Index Rate Money Market Loan
after notice has been given to any Bank in accordance with Section 2.2(b),
Section 2.9(a) or (b) or 4.2(d), as the case may be, the Borrower shall
reimburse each Bank on demand for any resulting loss or expense (including,
without limitation, administrative costs) incurred by it (or by any existing or
prospective participant in the related Loan), including (without limitation) any
loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after any such payment or
failure to borrow, convert or continue, provided that such Bank shall have
delivered to the Borrower a certificate as to the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest error.
Without limiting the effect of the preceding sentence, such reimbursement shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal
<PAGE> 47
amount so paid, prepaid or not borrowed, converted or continued for the period
from the date of such payment, prepayment, or failure to borrow, convert or
continue to the last day of the then current Interest Period (or, in the case of
an Interest Period shortened by operation of clause (c) or (d) of the definition
of "Interest Period", the last day of the Interest Period which would have
applied but for the operation of such clause (c) or (d)) for such Euro-Dollar
Loan (or, in the case of a failure to borrow, convert or continue, the Interest
Period for such Euro-Dollar Loan or Index Rate Money Market Loan which would
have commenced on the date specified for such borrowing, conversion or
continuation) at the applicable rate of interest for such Euro-Dollar Loan
provided for herein (excluding the Applicable Margin) over (ii) the interest
component of the amount such Bank (or any corporation controlling such Bank)
would have bid in the London interbank market for U.S. Dollar deposits of
leading banks in amounts comparable to such principal amount and with maturities
comparable to such period (as reasonably determined by such Bank).
SECTION 5.6. Right of Set-Off. Whenever any amount owing to any Bank
by the Borrower shall not be paid when due (whether at the stated maturity
thereof, by acceleration or otherwise), such Bank is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply against such overdue amount any and all monies, securities and other
property of the Borrower and the proceeds thereof, now or hereafter held or
received by, or in transit to, such Bank from or for the Borrower, whether for
safekeeping, custody, pledge, transmission, collection or otherwise and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Bank to or for the credit
or the account of the Borrower. Each Bank agrees promptly to notify the
Borrower after any such set-off and application made by such Bank, provided that
the failure to give such notice shall not affect the validity of such set-off
and application. The rights of each Bank under this Section are in addition to
other rights and remedies (including, without limitation, other rights of set-
off) which such Bank may have.
SECTION 5.7. Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period with respect to
a Euro-Dollar Borrowing or Index Rate Money Market Loan:
(a) the Administrative Agent is advised by the Euro-Dollar Reference
Bank that deposits in dollars (in the applicable amounts) are not being offered
to the Euro-Dollar Reference Bank in the relevant market for such Interest
Period, or
(b) in the case of Euro-Dollar Loans, Banks having 50% or more of the
aggregate amount of the Revolving Commitments
<PAGE> 48
advise the Administrative Agent that the Adjusted London Interbank Offered Rate
as determined by the Administrative Agent will not adequately and fairly reflect
the cost to such Banks of funding their Euro-Dollar Loans for such Interest
Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, the
obligations of the Banks, to make Euro-Dollar Loans and/or Index Rate Money
Market Loans, or to continue or convert into Euro-Dollar Loans of the applicable
type pursuant to Section 2.9, shall be suspended; provided, however, that in the
case of Euro-Dollar Borrowings, unless the Borrower notifies the Administrative
Agent at least two Domestic Business Days before the date of any Euro-Dollar
Borrowing for which a Notice of Borrowing has previously been given that it
elects not to borrow on such date, such Borrowing shall be made as a CIBC
Alternate Base Rate Borrowing.
SECTION 5.8. Illegality. If the adoption after the date of this
Agreement of any applicable law, rule or regulation, or any change after the
date of this Agreement therein, or any change after the date of this Agreement
in the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Euro-Dollar Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency made after the date of
this Agreement shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans or
Index Rate Money Market Loans and such Bank shall so notify the Administrative
Agent, the Administrative Agent shall forthwith give notice thereof to the other
Banks and the Borrower, whereupon until such Bank notifies the Borrower and the
Administrative Agent that the circumstances giving rise to such suspension no
longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be
suspended. Before giving any notice to the Administrative Agent pursuant to
this Section, such Bank shall designate a different Euro-Dollar Lending Office
if such designation will avoid the need for giving such notice and will not, in
the judgment of such Bank, be otherwise disadvantageous to such Bank. If such
Bank shall determine that it may not lawfully continue to maintain and fund any
of its outstanding Euro-Dollar Loans or Index Rate Money Market Loans to
maturity and shall so specify in such notice, the Borrower shall immediately
prepay in full the then outstanding principal amount of each such Euro-Dollar
Loan, together with accrued interest thereon and any amounts payable pursuant to
Section 5.5. Concurrently with prepaying each such Euro-Dollar Loan or Index
Rate Money Market Loan, the Borrower shall borrow a CIBC Alternate Base Rate
Loan or Absolute Rate Money Market Loan, as applicable, in an equal principal
amount from such Bank (on which, in the case of Euro-Dollar Loans, interest and
principal
<PAGE> 49
shall be payable contemporaneously with the related Euro-Dollar Loans of the
other Banks), and such Bank shall make such a CIBC Alternate Base Rate Loan or
Absolute Rate Money Market Loan, as applicable.
SECTION 5.9. Increased Cost and Reduced Return. (a) If the adoption
after the date hereof of any applicable law, rule or regulation, or any change
after the date hereof therein, or any change after the date hereof in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency made after the date hereof:
(i) shall subject any Bank (or its Lending Office) to any tax, duty
or other charge with respect to its Euro-Dollar Loans, Index Rate Money
Market Loans, its Notes, any Letter of Credit or its obligation to
participate in the Letters of Credit, any Application or its obligation to
make Euro-Dollar Loans or Index Rate Money Market Loans, or shall change
the basis of taxation of payments to any Bank (or its Lending Office) of
the principal of or interest on its Euro-Dollar Loans or Index Rate Money
Market Loans or any other amounts due under this Agreement in respect of
its Euro-Dollar Loans or Index Rate Money Market Loans or its obligation to
make Euro-Dollar Loans or Index Rate Money Market Loans or issue or
participate in the Letters of Credit (except for changes in the rate of tax
on the overall net income of such Bank or its Lending Office imposed by the
jurisdiction in which such Bank's principal executive office or Lending
Office is located); or
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding, with respect to any Euro-Dollar Loan, any such
requirement included in an applicable Euro-Dollar Reserve Percentage)
against assets of, deposits with or for the account of, or credit extended
by, any Bank (or its Lending Office) or shall impose on any Bank (or its
Lending Office) or on the London interbank market any other condition
affecting its Euro-Dollar Loans, its Notes, any Letter of Credit, any
Application or its obligation to make Euro-Dollar Loans or Index Rate Money
Market Loans or to participate in the Letters of Credit;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Lending Office) of making or maintaining any Euro-Dollar Loan or Index Rate
Money Market Loans or issuing or participating in Letters of Credit, or to
reduce the amount of any sum received or receivable by such Bank (or its Lending
<PAGE> 50
Office) under this Agreement, under its Notes with respect thereto or with
respect to such Letters of Credit, by an amount deemed by such Bank to be
material, then, within 15 days after demand by such Bank (with a copy to the
Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such increased cost or
reduction.
(b) Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section 5.9 and will designate a different Lending Office if such designation
will avoid the need for, or reduce the amount of, such compensation and will
not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A
certificate of any Bank claiming compensation under this Section and setting
forth the additional amount or amounts to be paid to it hereunder shall be
conclusive in the absence of manifest error. In determining such amount, such
Bank may use any reasonable averaging and attribution methods.
SECTION 5.10. CIBC Alternate Base Rate Loans Substituted for Affected
Euro-Dollar Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans
has been suspended pursuant to Section 5.8 or (ii) any Bank has demanded
compensation under Section 5.9(a), and the Borrower shall, by at least five
Euro-Dollar Business Days' prior notice to such Bank through the Administrative
Agent, have elected that the provisions of this Section 5.10 shall apply to such
Bank, then, unless and until such Bank notifies the Borrower that the
circumstances giving rise to such suspension or demand for compensation no
longer apply:
(a) all Loans which would otherwise be made by such Bank as
Euro-Dollar Loans shall be made instead as CIBC Alternate Base Rate Loans (on
which interest and principal shall be payable contemporaneously with the related
Euro-Dollar Loans of the other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all payments
of principal which would otherwise be applied to repay such Euro-Dollar Loans
shall be applied to repay its CIBC Alternate Base Rate Loans instead.
SECTION 5.11. Fees. The Borrower shall pay to the Administrative
Agent and/or the Co-Agents, as appropriate, the fees in the amounts and on the
dates specified in the Fee Letter.
<PAGE> 51
SECTION 6. CONDITIONS PRECEDENT
SECTION 6.1 All Loans and Letters of Credit. The obligation of each
Bank to make a Loan and the obligation of the Letter of Credit Bank to issue,
and the L/C Participants to participate in, any Letter of Credit, is subject to
the satisfaction of the following conditions precedent on the relevant Borrowing
Date:
(a) receipt by the Administrative Agent of notice of such Borrowing
as required by Section 2.2 (in the case of a Revolving Loan) or, with respect to
the issuance of such Letter of Credit, receipt by the Letter of Credit Bank of
an Application and the other materials required by Section 3.2;
(b) the fact that, immediately after such borrowing or issuance, as
the case may be, no Default or Event of Default shall have occurred and be
continuing; and
(c) the fact that the representations and warranties of the Borrower
or any of its Subsidiaries, as the case may be, contained in this Agreement and
the other Credit Documents shall be true and correct in all material respects on
and as of the date of such borrowing or issuance.
Each borrowing hereunder and each issuance of a Letter of Credit shall
be deemed to be a representation and warranty by the Borrower on the date of
such borrowing or issuance as to the facts specified in clauses (b) and (c) of
this Section.
SECTION 6.2. Conditions to Effectiveness of this Agreement, Initial
Loans and Letters of Credit. The effectiveness of this Agreement, the
obligation of each Bank to make its Loans and of the Letter of Credit Bank to
issue any Letter of Credit on the Closing Date are subject to the satisfaction
or waiver by such Bank of the following conditions precedent, provided that,
each such condition be satisfied or waived no later than December 31, 1994:
(a) receipt by the Administrative Agent for the account of each Bank
of duly executed Revolving Notes and Money Market Loan Notes each dated the
Closing Date, complying with the provisions of Section 2.3 and Section 4.4, as
applicable;
(b) receipt by the Administrative Agent of (i) an opinion, dated the
Closing Date, of Blackwell, Sanders, Matheny, Weary & Lombardi, counsel for the
Borrower, substantially in the form of Exhibit J-1 hereto, covering such matters
relating to the transactions contemplated hereby as the Required Banks may
reasonably request, together with such opinions of local counsel for the Banks
for the States of Texas, Colorado, California, Iowa and Indiana, in form, scope
and substance satisfactory to the Administrative Agent as the Administrative
Agent may reasonably request, (ii) an opinion, dated the Closing Date, of
Wachtel,
<PAGE> 52
Lipton, Rosen & Katz, special New York counsel for the Borrower, substantially
in the form of Exhibit J-2 hereto, and covering such additional matters relating
to the transactions contemplated hereby as the Administrative Agent may
reasonably request, and (iii) an opinion, dated the Closing Date, of Amster,
Rothstein & Ebenstein, trademark counsel to the Administrative Agent and the
Banks, substantially in the form of Exhibit J-3 hereto, in form, scope and
substance satisfactory to the Administrative Agent;
(c) receipt by the Administrative Agent of Closing Certificates
signed by executive officers of the Borrower and Somerville, substantially in
the form of Exhibit L-1 and L-2 hereto, with appropriate insertions and
attachments satisfactory in form and substance to the Administrative Agent;
(d) receipt by the Administrative Agent of all documents it may
reasonably request relating to the existence of the Borrower and its
Subsidiaries, the corporate authority for and the validity of this Agreement,
the Notes and the other Credit Documents, and any other matters relevant hereto
(including, without limitation, certified resolutions and incumbency
certificates), all in form and substance satisfactory to the Administrative
Agent;
(e) there shall not have occurred since November 27, 1993, a material
adverse change, or development or event involving a prospective change, which,
in the reasonable judgment of the Banks, could have a material adverse effect on
(i) the assets, liabilities, properties, business, operations or condition,
financial or otherwise, or prospects of the Borrower and its Subsidiaries, taken
as a whole, (ii) their ability to perform their obligations under the Credit
Documents, or (iii) the rights and remedies of the Collateral Agent, the
Administrative Agent or the Banks under the Credit Documents, and none of the
Administrative Agent or any Bank shall have become aware of any theretofore
previously undisclosed materially adverse information with respect to the
matters described in subclause (i), (ii) or (iii) of this clause (e);
(f) all transactions contemplated hereby shall be in compliance with
and permitted by all applicable laws and regulations of the United States and
all laws and regulations of each state (including, without limitation,
environmental laws) except where the failure to so comply with or be permitted
by would not have a Materially Adverse Effect;
(g) there shall be no actions, suits or proceedings by any
Governmental Authority or other Person or investigation by any Governmental
Authority pending or known by the Borrower to be threatened with respect to the
Borrower or any of its Subsidiaries, or (relating to the transactions
contemplated hereunder) the Administrative Agent or any Bank, as to which there
is a reasonable likelihood of a Materially Adverse Effect; there has occurred
since the date of this Agreement no
<PAGE> 53
development in any action, suit, proceeding, governmental investigation or
arbitration disclosed to the Banks prior to such date as to which there is a
reasonable likelihood of such an event, and there shall be no judgment, order,
injunction or other restraint prohibiting any of the transactions contemplated
hereby;
(h) receipt by the Administrative Agent of evidence satisfactory to
the Administrative Agent that all fees payable to the Administrative Agent and
the Banks on or prior to the Closing Date shall have been paid in full;
(i) receipt by the Administrative Agent and the Collateral Agent of
this Agreement and the Security Documents duly executed and delivered by the
Borrower or its Subsidiary, as the case may be (which agreements shall be in
full force and effect on the Closing Date), together with (1) the stock
certificates representing those shares of stock of the Borrower's Subsidiaries
pledged to the Collateral Agent pursuant to the Stock Pledge Agreement and
undated blank stock powers therefor duly executed by the Borrower, (2) the
promissory note pledged to the Collateral Agent pursuant to the Note Pledge
Agreement, duly endorsed to the order of "Bearer," (3) proper UCC-1 and/or UCC-3
financing statements pursuant to the Uniform Commercial Code for all
jurisdictions as may be necessary or, in the opinion of the Administrative
Agent, desirable to perfect the security interests in favor of the Collateral
Agent in the Collateral duly executed by the Borrower or such Subsidiary, as the
case may be and (4) evidence satisfactory to the Administrative Agent that all
procedures required by the Uniform Commercial Code and other applicable law have
been (or will be) completed in order to create in favor of the Collateral Agent
a perfected first priority security interest in all of the Collateral described
in the Security Agreement and the Subsidiary Security Agreement;
(j) receipt by the Administrative Agent of all consents, in form and
substance satisfactory to the Administrative Agent, from third parties,
necessary to permit (i) the effective granting of the Liens created under the
Security Documents, and (ii) the execution, delivery and performance by the
Borrower and Somerville of their obligations under the Credit Documents;
(k) receipt by the Administrative Agent of certificates of insurance
and loss payee and additional insured insurance endorsements, in form and
substance satisfactory to the Administrative Agent, with respect to the
insurance coverage required pursuant to Section 8.3 and of the schedule
described in Section 8.3(c);
(l) receipt by the Administrative Agent of the results of a recent
search by a Person satisfactory to the Administrative Agent, of the Uniform
Commercial Code and Patent and Trademark Office filings which may have been
filed with respect to personal
<PAGE> 54
property (including intangible property) of the Borrower and its Subsidiaries,
and such search shall reveal no Liens on any of the assets of the Borrower or
its Subsidiaries except as permitted by Section 8.10;
(m) receipt by the Administrative Agent of evidence, in form and
substance satisfactory to the Administrative Agent, that the Borrower shall then
have a Consolidated Net Worth (excluding the book value of the Warrants and
common stock subject to puts and calls to the extent either is included in
stockholders' equity) in an amount equal to at least $400,000,000;
(n) receipt by the Administrative Agent from the issuer referred to
in the Stock Pledge Agreement of an executed acknowledgement and consent which
shall be substantially in the form of Annex I to the Stock Pledge Agreement;
(o) receipt by the Administrative Agent, with a copy for each Bank,
of the Inter-Facility Agreement duly executed and delivered by each of the
parties thereto;
(p) receipt by the Administrative Agent of evidence, in form and
substance satisfactory to it, that the Merchandise Letter of Credit Facility
shall continue to be in full force and effect, shall enable the Borrower to
cause $15,000,000 of documentary letters of credit to be issued on its behalf
and shall otherwise contain terms and conditions acceptable to the
Administrative Agent;
(q) receipt by the Administrative Agent of evidence, in form and
substance satisfactory to it that the Existing Credit Agreement, the Existing
Multiple Draw Term Loan Agreement and the Existing Standby Letter of Credit
Agreement have been terminated and all amounts outstanding thereunder, other
than amounts to become due under the letters of credit set forth on Schedule II
hereto, have been paid in full; and
(r) receipt by the Administrative Agent of such other documents and
agreements as may be reasonably requested by the Administrative Agent in
connection with the financing contemplated hereunder.
SECTION 7. REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement and to make the
Loans, and to induce the Letter of Credit Bank to issue, and the L/C
Participants to participate in, the Letters of Credit, the Borrower makes the
following representations and warranties, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans and the
issuance of the Letters of Credit and shall be deemed repeated and confirmed
<PAGE> 55
as of the date of the making of each Loan and the issuance of each Letter of
Credit:
SECTION 7.1. Corporate Existence and Power. The Borrower is (a) a
corporation duly incorporated, validly existing and in good standing under the
laws of Iowa, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and as proposed to be conducted, except for such licenses,
authorizations, consents and approvals, the failure to have which would not have
a Materially Adverse Effect, and (b) has duly qualified and is authorized to do
business and is in good standing in all jurisdictions where the failure to do so
would have a Materially Adverse Effect.
SECTION 7.2. Corporate Power and Authority. The Borrower has the
power and authority to execute, deliver and carry out the terms and provisions
of each of the Credit Documents (including, without limitation, the granting of
any Liens contemplated thereby) to which it is, or is to be, a party. The
Borrower has taken all necessary action to authorize the execution, delivery and
performance of each of the Credit Documents to which it is, or is to be, a
party. Each Credit Document when executed and delivered by the Borrower will
constitute the legal, valid and binding obligation of the Borrower enforceable
in accordance with its terms except as enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting the enforceability of creditors' rights generally and by general
principles of equity.
SECTION 7.3. No Violation. Neither the execution, delivery or
performance by the Borrower of any of the Credit Documents to which it either
is, or is to be, a party nor compliance with any of the terms and provisions
thereof, nor the consummation of any of the transactions contemplated therein
(a) has contravened or will contravene any provision of any law, statute, rule
or regulation, including, without limitation, Rule 13e-3 under the Securities
Exchange Act of 1934, as amended, or any other law, statute, rule or regulation
or any order, writ, injunction or decree of any other Governmental Authority,
(b) has conflicted or been inconsistent with or will conflict or be inconsistent
with, or has resulted in or will result in any breach of, any of the terms,
covenants, conditions or provisions of, or has constituted or will constitute
(with or without notice or lapse of time or both) a default under, any
indenture, mortgage, deed of trust, agreement or other instrument to which the
Borrower or any of its Subsidiaries is a party, or any of their property or
assets are bound or to which any of them may be subject, in each such case the
contravention with which would have a Materially Adverse Effect or (c) result in
the creation or imposition of (or the obligation to create or impose), any Lien
upon any of the property or assets of the Borrower or any of its Subsidiaries
pursuant to the terms of any indenture, mortgage,
<PAGE> 56
deed of trust, agreement or other instrument to which the Borrower or any of its
Subsidiaries is a party or by which they or any of their property of assets are
bound or to which any of them may be subject (other than as contemplated by the
Security Documents) or (d) has violated or will violate any provision of the
Restated Articles of Incorporation or by-laws of the Borrower or any of its
Subsidiaries.
SECTION 7.4. Margin Regulations. No part of the proceeds of the
Loans will be used to purchase or carry any Margin Stock in violation of
Regulation U or Regulation G or to extend credit for the purpose of purchasing
or carrying any Margin Stock in violation of Regulation U or Regulation G.
Neither the making of any Loan hereunder, nor the use of the proceeds thereof,
will violate or be inconsistent with the provisions of Regulation G, T, U or X
of the Board of Governors of the Federal Reserve System.
SECTION 7.5. Approvals. Except for those registrations, consents,
waivers, approvals, notices and actions with any Governmental Authority or other
Person which have been obtained, given, filed or taken prior to the date hereof
(complete and correct copies of which have been delivered to each Bank), the
execution, delivery and performance by the Borrower of the Credit Documents to
which it is, or is to be, a party (including, without limitation, the
application of the proceeds of the Loans) did not, do not and will not require
any registration with, consent or waiver or approval of, or notice to, or other
action to, with or by, any (i) federal or Iowa Governmental Authority or
(ii) other Governmental Authority or any other Person, where the failure so to
obtain, give, file or take would have a Materially Adverse Effect.
SECTION 7.6. Investment Company Act; etc. Neither the Borrower nor
any of its Subsidiaries will be after giving effect to the transactions
contemplated hereby or any borrowing or the issuance of any Letter of Credit to
be made hereunder (x) an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended or (y) subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act or any foreign, federal or local statute or
regulation limiting its ability to incur indebtedness for money borrowed or
guarantee such indebtedness as contemplated hereby or by any other Credit
Document.
SECTION 7.7. True and Complete Disclosure. All financial information
heretofore or contemporaneously furnished by or on behalf of the Borrower or any
Subsidiary and all information contained in any of the Credit Documents and the
exhibits and schedules thereto is, and all other such information hereafter
furnished, including, without limitation, all information contained in any of
the Credit Documents, including any exhibits or schedules thereto, by or on
behalf of the
<PAGE> 57
Borrower or any Subsidiary to or on behalf of any Bank will be, true and
accurate in all material respects on the date as of which such information is
dated or certified (except for any projections included therein, which
projections shall have provided reasonable estimations of future performance for
the periods covered thereby subject to the uncertainty and approximation
inherent in any projections) and not incomplete by omitting to state anything
necessary to make such information not misleading at such time except to the
extent later information could reasonably have been expected to supersede
earlier information. There is nothing of which the Borrower is aware which
would have a Materially Adverse Effect which has not been disclosed pursuant to
the terms of this Agreement. All statements of fact and representations
concerning the present and anticipated business, operations and assets of the
Borrower and its Subsidiaries, the Credit Documents and the transactions
referred to therein and in the opinions, memoranda and rulings contained
therein, are true and correct in all material respects, and all assumptions with
respect thereto contained therein are reasonable in all material respects, each
as of the date such information is dated or certified.
SECTION 7.8. Subsidiaries. Schedule 7.8 hereto, as amended by the
Borrower from time to time, contains a true, correct and complete description of
each Subsidiary of the Borrower, its capitalization, its jurisdiction of
incorporation and its ownership (by holder and percentage interest). Each
Subsidiary of the Borrower is a corporation duly incorporated, validly existing,
and in good standing under the laws of its jurisdiction of incorporation and has
all corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and as
proposed to be conducted, and each Subsidiary has duly qualified and is
authorized to do business and is in good standing in all jurisdictions where the
failure to do so would have a Materially Adverse Effect. On the date of this
Agreement, Somerville is the only active Subsidiary of the Borrower and the only
Subsidiary of the Borrower with any substantial assets.
SECTION 7.9. Financial Condition; Financial Statements; Projections.
(a) The Borrower is not entering into the arrangements contemplated hereby with
actual intent to hinder, delay or defraud either present or future creditors.
On and as of the Closing Date on a pro forma basis after giving effect to all
Debt (including, without limitation, the Loans and the Letters of Credit)
incurred, or to be created in connection therewith:
(i) no final judgments in actions for money damages with respect to
pending or threatened litigation will be rendered at a time when, or in an
amount such that, the Borrower or the affected Subsidiary will be unable to
satisfy any such judgments promptly in accordance with their terms (taking
into account the maximum reasonable amount of
<PAGE> 58
such judgments in any such actions and the earliest reasonable time at
which such judgments might be rendered); the cash available after taking
into account all other anticipated uses of the cash of such Person is
anticipated to be sufficient to pay all such judgments promptly in
accordance with their terms;
(ii) the present fair salable value of the assets of each of the
Borrower and its Subsidiaries will exceed the probable liability of each of
the Borrower and its Subsidiaries on its debts (including its contingent
obligations);
(iii) neither the Borrower nor any of its Subsidiaries will have
incurred or intends to, or believes that it will, incur debts (including
its contingent obligations) beyond its ability to pay such debts as such
debts mature (taking into account the timing and amounts of cash to be
received by such Person from any source, and of amounts to be payable on or
in respect of debts of such Person and the amounts referred to in clause
(i)); the cash available to each such Person after taking into account all
other anticipated uses of the cash of such Person, is anticipated to be
sufficient to pay all such amounts on or in respect of debts of such
Person, when such amounts are required to be paid; and
(iv) the Borrower and each of its Subsidiaries will have sufficient
capital with which to conduct its present and proposed business, and the
property of the Borrower and each of its Subsidiaries does not constitute
unreasonably small capital with which to conduct its present or proposed
business.
For purposes of this Section 7.9(a) "debt" means any liability on a
claim, and "claim" means (A) right to payment whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives
rise to a payment, whether or not such right to an equitable remedy is reduced
to judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, or unsecured.
(b) There has heretofore been delivered to the Banks the audited
balance sheet of the Borrower and its Consolidated Subsidiary on a consolidated
basis, as of November 27, 1993 and the related consolidated statements of income
and cash flows for the year then ended accompanied by an unqualified opinion of
KPMG Peat Marwick. Such financial statements fairly present, in conformity with
generally accepted accounting principles applied on a consistent basis, the
consolidated financial position of the Borrower and its Consolidated Subsidiary
as of such date and their consolidated results of operations and cash flows for
such fiscal year. Neither the Borrower nor its Subsidiary had as of
<PAGE> 59
the date of the foregoing financial statements any material contingent
obligation, contingent liability or liability for taxes, long-term lease or
unusual forward or long-term commitment which is not disclosed in the foregoing
financial statements or the notes thereto.
(c) There have heretofore been delivered to the Banks pro forma
consolidated income projections for the Borrower and its Consolidated
Subsidiaries, pro forma consolidated balance sheet projections for the Borrower
and its Consolidated Subsidiaries and pro forma consolidated cash flow
projections for the Borrower and its Consolidated Subsidiaries, all for the
fiscal years ending 1994 through 1999, inclusive, each of which was prepared on
a cash flow basis ("Projected Cash Flow Financial Statements"). The Projected
Cash Flow Financial Statements have been prepared consistent with the Borrower's
past practices in its internal planning, the assumptions made in preparing the
Projected Cash Flow Financial Statements are reasonable, and all material
assumptions with respect to the Projected Cash Flow Financial Statements are set
forth therein; provided that the Projected Cash Flow Financial Statements have
not been prepared in accordance with generally accepted accounting principles.
The Projected Cash Flow Financial Statements provide reasonable estimations of
future performance on a cash basis, subject to the uncertainty and approximation
inherent in any projections.
(d) Since November 27, 1993, there has been no material adverse
change in the business, financial position, results of operations or prospects
of the Borrower and its Subsidiaries, considered as a whole. The most recent
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks pursuant to Sections 8.1(a) and (b) fairly present, in accordance
with generally accepted accounting principles applied on a consistent basis, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of the date thereof and their consolidated results of operations
for the period covered by such financial statements.
SECTION 7.10. Tax Returns and Payments. The Borrower and each of its
Subsidiaries has filed all federal income tax returns and all other material tax
returns and reports, domestic and foreign, required to be filed by it and has
paid all material taxes, assessments, fees and other governmental charges
payable by it which have become due, other than those not yet delinquent. The
Borrower and each of its Subsidiaries has paid, or has provided adequate
reserves for the payment of, all material federal, state and foreign income
taxes applicable for all prior fiscal years and for the current fiscal year to
the date hereof. There is no proposed tax assessment against the Borrower or
any of its Subsidiaries which would, if the assessment were made, have a
Materially Adverse Effect. The last closed tax year of the Borrower and its
Consolidated Subsidiaries is the fiscal year ended November 1985.
<PAGE> 60
SECTION 7.11. Litigation; Adverse Facts. There is no action, suit,
proceeding or investigation by any Governmental Authority or other Person
pending or known by the Borrower to be threatened with respect to the Borrower,
any of its Subsidiaries or any of their Affiliates or any of their assets or any
of the Credit Documents or any of the transactions contemplated hereby or
thereby as to which there is a reasonable likelihood of a Materially Adverse
Effect and there has occurred no development in any action, suit, proceeding,
governmental investigation or arbitration previously disclosed to the Banks, as
to which there is a reasonable possibility of such an effect.
SECTION 7.12. Compliance with Laws and Charter Documents. Neither
the Borrower nor any of its Subsidiaries is (i) in violation of its charter or
by-laws or (ii) in violation of any law, statute, rule, regulation, order, writ,
injunction or decree of any Governmental Authority applicable to any of them or
any of their respective properties or assets, which violation under this clause
(ii), individually or in the aggregate, would have a Materially Adverse Effect.
SECTION 7.13. Certain Fees. Except for fees payable to the
Administrative Agent and the Banks, no broker's or finder's fee or commission
will be payable with respect to the transactions contemplated by the Credit
Documents, or hereby, and the Borrower hereby indemnifies the Administrative
Agent and the Banks against and agrees that it will hold the Administrative
Agent and the Banks harmless from any claim, demand or liability for any
broker's or finder's fees or commissions alleged to have been incurred in
connection with any such offer, issue and sale, or any of the other transactions
contemplated hereby or by the other Credit Documents and any expenses including
reasonable legal fees, arising in connection with any such claim, demand or
liability.
SECTION 7.14. ERISA. (a) No ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan in any fiscal year of the
Borrower that would result in any liability of the Borrower or any Subsidiary of
the Borrower in excess, together with the amount of all other liabilities of the
Borrower and its Subsidiaries which would result from all other ERISA Events
that have occurred or are reasonably expected to occur with respect to Plans
during such fiscal year, of $3,000,000.
(b) Schedule B (Actuarial Information to the annual report (Form 5500
Series)) most recently completed with respect to each Plan, copies of which have
been filed with the Internal Revenue Service and delivered to the Banks, is
complete and accurate in all material respects and to the best knowledge of the
Borrower represents a reasonable estimate of the funding status and financial
condition of such Plan as of the date of such report, and since the date of such
Schedule B there has been no change in such funding status or financial
condition that
<PAGE> 61
would have a Materially Adverse Effect on the operations, properties,
performance or prospects of the Borrower taken individually or the Borrower and
its Subsidiaries taken as a whole.
(c) Neither the Borrower, any Subsidiary of the Borrower nor any
ERISA Affiliate of either of them has incurred, or is reasonably expected to
incur, any Withdrawal Liability to Multiemployer Plans in excess in any fiscal
year of the Borrower, of $3,000,000 in the aggregate for the Borrower, its
Subsidiaries and the ERISA Affiliates of any of them.
(d) Neither the Borrower, any Subsidiary of the Borrower nor any
ERISA Affiliate of either of them has received any notification that any
Multiemployer Plan is in reorganization or has been terminated, within the
meaning of Title IV of ERISA, and to the best knowledge of the Borrower, no
Multiemployer Plan is reasonably expected to be in reorganization or to be
terminated within the meaning of Title IV of ERISA, in either case where all
such reorganization or terminations would result in any liability of the
Borrower or any Subsidiary of the Borrower in any fiscal year of the Borrower in
excess of $3,000,000 in the aggregate for the Borrower and its Subsidiaries.
(e) With respect to each Plan which is an "employee pension plan"
within the meaning of Section 3(2) of ERISA and which is intended to qualify
under Section 401 of the Code, a favorable determination letter has been
received from the Internal Revenue Service stating that such Plan so qualifies,
and nothing has occurred since the date of the issuance of such determination
letter which would cause such Plan to cease to qualify under Section 401 of the
Code.
(f) None of the transactions contemplated by this Agreement or by any
Plan constitute a prohibited transaction as such term is defined in Section 406
of ERISA or Section 4975 of the Code.
SECTION 7.15. Good Title to Properties. Each of the Borrower and its
Subsidiaries has good and marketable title to all its material properties and
assets, including, without limitation, the Collateral, subject to no Liens,
mortgages, pledges, security interests, encumbrances or charges of any kind,
except such as would be permitted under Section 8.10.
SECTION 7.16. Trademarks, Patents, etc. Each of the Borrower and its
Subsidiaries possesses all the trademarks, trade names, copyrights, patents,
licenses, or rights in any thereof, adequate in all material respects for the
conduct of its business as now conducted and presently proposed to be conducted,
without conflict with the rights or, to the best knowledge of the Borrower, any
presently claimed rights of others.
<PAGE> 62
SECTION 7.17. Labor Matters. Neither the Borrower nor any Subsidiary
of the Borrower has experienced any strike, labor dispute, slowdown or work
stoppage due to labor disagreements which would have a Materially Adverse Effect
and to the best knowledge of the Borrower, there is no such strike, dispute,
slowdown or work stoppage threatened against the Borrower or any Subsidiary of
the Borrower.
SECTION 7.18. Environmental Matters. To the best of the Borrower's
knowledge, except as set forth on Schedule 7.18:
(a) The Property does not contain any Hazardous Substance in amounts
or concentrations which (i) constitute a violation of, or (ii) could reasonably
give rise to liability under, Environmental Law except in either case insofar as
such violation or liability, or any aggregation thereof, is not reasonably
likely to result in a Materially Adverse Effect.
(b) The Property and all operations at the Property are in
compliance, and have in the last three years been in compliance, in all material
respects with all applicable Environmental Laws, and there is no contamination
at or under the Property, or violation of any Environmental Law with respect to
the Property or the operations at the Property, which is reasonably likely to
result in a Materially Adverse Effect.
(c) Neither the Borrower nor any of its Subsidiaries has received any
notice of violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with Environmental Law
with regard to any of the Property or the operations at the Property, nor does
the Borrower or such Subsidiary have knowledge or reason to believe that any
such notice will be received or is being threatened except insofar as such
notice or threatened notice, or any aggregation thereof, does not involve a
matter or matters that is or are reasonably likely to result in a Materially
Adverse Effect.
(d) Hazardous Substances have not been transported or disposed of
from any of the Property in violation of, or in a manner or to a location which
could reasonably give rise to liability under, Environmental Law, nor have any
Hazardous Substances been generated, treated, stored or disposed of at, on or
under any of the Property in violation of, or in a manner that could reasonably
give rise to liability under, any applicable Environmental Law except insofar as
any such violation or liability referred to above, or any aggregation thereof,
is not reasonably likely to result in a Materially Adverse Effect.
(e) No judicial proceedings or governmental or administrative action
is pending, or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower is or will be named as a party with
respect to the Property or the operations at the Property, nor are there any
<PAGE> 63
consent decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under any
Environmental Law with respect to the Property or such operations except insofar
as such proceeding, action, decree, order or other requirement, or any
aggregation thereof, is not reasonably likely to result in a Materially Adverse
Effect.
(f) There has been no release or threat of release of any Hazardous
Substance at or from the Property, or arising from or related to the operations
of the Property in connection with the Property or otherwise in connection with
such operations in violation of or in amounts or in a manner that could
reasonably give rise to liability under Environmental Law except insofar as any
such violation or liability referred to above, or any aggregation thereof, is
not reasonably likely to result in a Materially Adverse Effect.
SECTION 7.19. No Default. Neither the Borrower nor any of its
Subsidiaries is in default in the payment or performance of any of its or their
Contractual Obligations in any respect which could reasonably be expected to
have a Materially Adverse Effect. Neither the Borrower nor any of its
Subsidiaries is in default under any order, award or decree of any Governmental
Authority or arbitrator binding upon or affecting it or them or by which any of
its or their properties or assets may be bound or affected in any respect which
could reasonably be expected to have a Materially Adverse Effect and no such
order, award or decree would have a Materially Adverse Effect on the ability of
the Borrower and its Subsidiaries taken as a whole to carry on their businesses
as presently conducted or the ability of any Credit Party to perform its
obligations under any Credit Document to which it is a party.
SECTION 8. COVENANTS
The Borrower agrees that, so long as any Bank has any Revolving
Commitment hereunder, any Letter of Credit or any time draft accepted under any
Letter of Credit remains outstanding or any amount payable hereunder or under
any Note or under any other Credit Document remains unpaid:
SECTION 8.1. Information. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income and statements of cash flows for
such fiscal year, setting forth in each case in comparative form the figures for
the previous fiscal year, all audited in a
<PAGE> 64
manner acceptable to the SEC by KPMG Peat Marwick or other independent public
accountants of nationally recognized standing;
(b) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of income and
statements of cash flows for such quarter and for the portion of the Borrower's
fiscal year ended at the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding quarter and the corresponding
portion of the Borrower's previous fiscal year, all certified (subject to normal
year-end adjustments) as to fairness of presentation, generally accepted
accounting principles and consistency by the chief financial officer or the
chief accounting officer of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the chief
financial officer or the chief accounting officer of the Borrower substantially
in the form of Exhibit P hereto (a "Compliance Certificate") (i) setting forth
in reasonable detail (x) the calculations required to establish whether the
Borrower was in compliance with the requirements of Sections 8.12 (the
calculations with respect to compliance with such Section 8.12 to be delivered
only with the delivery of the financial statements to be delivered under clause
(a) above), 8.16, 8.17 and 8.26 on the date of such financial statements and (y)
the calculation of "Excess Cash Flow" for the fiscal year ended on the date of
such financial statements (the calculation of such Excess Cash Flow to be
delivered only with the delivery of the financial statements to be delivered
under clause (a) above) and (ii) stating whether any Default or Event of Default
exists on the date of such certificate and, if any Default or Event of Default
then exists, setting forth the reasonable details thereof and the action which
the Borrower is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i) as to
whether anything has come to their attention to cause them to believe that any
Default or Event of Default existed on the date of such statements and (ii)
confirming the calculations set forth in the officer's certificate delivered
simultaneously therewith pursuant to clause (c) above;
(e) forthwith upon the occurrence of any Default or Event of Default,
a certificate of the chief financial officer or the chief accounting officer of
the Borrower setting forth the details thereof and the action which the Borrower
is taking or proposes to take with respect thereto;
<PAGE> 65
(f) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, significant reports and
proxy statements so mailed;
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Borrower shall have filed with the SEC;
(h) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the chief
financial officer of the Borrower, in form and substance reasonably satisfactory
to the Administrative Agent, describing all gains and losses by the Borrower and
its Consolidated Subsidiaries for such fiscal quarter just ended from the sale
or other disposition of their capital assets which do not constitute
extraordinary gains or losses under generally accepted accounting principles and
for which the sale price or book value for such asset at time of sale is greater
than $3,000,000;
(i) forthwith upon becoming aware of (i) any litigation or other
proceeding as to which there is a reasonable likelihood of a Materially Adverse
Effect or (ii) any default with respect to any contractual obligation or any
event or condition which would have a Materially Adverse Effect, notice thereof;
(j) not later than forty-five days after the commencement of each
fiscal year of the Borrower, a one-year forecast of the financial condition and
results of operations of the Borrower for each such year, in all instances in
form, scope and detail satisfactory to the Administrative Agent;
(k) promptly upon becoming aware of any material adverse change in
the business, financial position, results of operations or prospects of the
Borrower and its Subsidiaries considered as a whole since November 27, 1993,
notice thereof;
(l) (i) promptly and in any event within thirty days after the
filing thereof with the Internal Revenue Service, copies of each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) with
respect to each Plan;
(ii) promptly and in any event within fifteen days after the Borrower
knows or has reason to know that any ERISA Event has occurred, a statement
of the chief financial officer of the Borrower describing such ERISA Event
and the action, if any, which the Borrower, any Subsidiary of the Borrower
or any ERISA Affiliate of either of them proposes to take with respect
thereto;
<PAGE> 66
(iii) promptly and in any event within five Domestic Business Days
after receipt thereof by the Borrower or any Subsidiary of the Borrower or
any ERISA Affiliates of either of them, copies of each notice from the PBGC
stating its intention to terminate any Plan or to have a trustee appointed
to administer any Plan;
(iv) promptly and in any event within ten Domestic Business Days
after receipt thereof by the Borrower or any Subsidiary of the Borrower or
any ERISA Affiliate of either of them from the sponsor of a Multiemployer
Plan, a copy of each notice received by the Borrower or any Subsidiary of
the Borrower or any ERISA Affiliate of either of them concerning (1) the
imposition of Withdrawal Liability by a Multiemployer Plan, (2) the
reorganization or termination, within the meaning of Title IV of ERISA, of
any Multiemployer Plan or (3) the amount of liability incurred, or which
may be incurred, by the Borrower or any Subsidiary of the Borrower or any
ERISA Affiliate of either of them in connection with any event described in
clause (1) or (2) above; and
(m) from time to time with reasonable promptness, such additional
information regarding the financial position or business of the Borrower and its
Subsidiaries as the Administrative Agent, at the request of any Bank, may
reasonably request.
SECTION 8.2. Payment of Obligations. The Borrower will pay and
discharge, and will cause each Subsidiary of the Borrower to pay and discharge,
at or before maturity, all their respective material obligations and
liabilities, including, without limitation, material tax liabilities, except
where the same may be contested in good faith by appropriate proceedings (and
with respect to taxes, only if the failure to make such payment shall not result
in a Lien on any Collateral or such Lien will not attach to any of the
Collateral in a manner which would have priority over the Lien of the Collateral
Agent thereon or risk the sale of or foreclosure on such Collateral), and will
maintain, and will cause the Borrower and each Subsidiary of the Borrower to
maintain, in accordance with generally accepted accounting principles,
appropriate reserves for the accrual of any of the same.
SECTION 8.3. Maintenance of Property; Insurance. (a) The Borrower
will keep, and will cause each Subsidiary of the Borrower to keep, all material
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.
(b) The Borrower will maintain, and will cause each of its
Subsidiaries to maintain, with financially sound and reputable insurance
companies insurance on all its property in at least such amounts (including
deductibles) and against at least
<PAGE> 67
such risks as are usually insured against in the same general area by companies
engaged in the same or a similar business, provided that such insurance shall
(i) insure the property of the Borrower and its Subsidiaries (other than motor
vehicles) against all risk of physical damage including, without limitation,
loss by fire, explosion, theft and such other casualties as may be reasonably
satisfactory to the Administrative Agent, but in no event in an amount less than
the replacement cost value thereof, and (ii) insure the Borrower, its
Subsidiaries, the Collateral Agent, the Administrative Agent and the Banks
against comprehensive general and automobile liability in an amount not less
than $1,000,000 per occurrence under primary insurance policies, with not less
than $45,000,000 per occurrence coverage under umbrella insurance policies for
personal injury, bodily injury and property damage relating to the Borrower's
and its Subsidiaries' property and operations, such policies to be in such form
and amounts and having such coverage as may be reasonably satisfactory to the
Administrative Agent. All such insurance shall (i) contain a breach of warranty
clause in favor of the Collateral Agent, the Administrative Agent, and the Banks
in all physical damage insurance policies and have a severability of interest
clause in all liability insurance policies, (ii) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after written notice to the Administrative
Agent thereof, (iii) name the Administrative Agent as loss payee for physical
damage insurance with respect to property as to which a Lien has been granted
(provided, that (a) with respect to property to which a Lien permitted hereunder
has been granted to another creditor, such other creditor may also be named as
loss payee, with payment to be made as their interests may appear and (b) the
proceeds of any such physical damage insurance shall be applied in the manner
set forth in Section 2.7(c)) and name the Collateral Agent, the Administrative
Agent and the Banks as additional insureds for liability insurance, (iv) state
that neither the Administrative Agent or the Collateral Agent nor the Banks
shall be responsible for premiums, commissions, club calls, assessments or
advances, (v) shall contain a waiver of all rights of set-off, counterclaim,
deduction or subrogation against the Administrative Agent and the Banks and (vi)
be reasonably satisfactory in all other respects (including deductibles) to the
Administrative Agent with respect to physical damage exposures.
(c) The Borrower will furnish to the Administrative Agent prior to
the Closing Date, with a copy for each Bank, a schedule describing all insurance
maintained by the Borrower and its Subsidiaries, which schedule shall set forth
for each insurance policy the policy number, the scope of coverage, the policy
limits and deductibles, the insurer (and reinsurer, if applicable) and the
expiration date.
(d) The Borrower will furnish to the Administrative Agent, with a
copy for each Bank, original certificates of insurance containing signatures of
duly authorized
<PAGE> 68
representatives of the insurer at the Closing Date and prior to policy
termination, cessation or cancellation.
SECTION 8.4. Conduct of Business and Maintenance of Existence. The
Borrower will continue, and will cause each Subsidiary of the Borrower to
continue, to engage in business of the same general type as now conducted by the
Borrower and its Subsidiaries, and will preserve, renew and keep in full force
and effect, and, except as permitted by Section 8.11(g), will cause each
Subsidiary of the Borrower to preserve, renew and keep in full force and effect,
their respective corporate existence and their respective rights, privileges and
franchises except for such rights, privileges and franchises when the failure of
which to preserve, renew and keep in full force and effect would not have a
Materially Adverse Effect.
SECTION 8.5. Compliance with Laws. The Borrower will comply, and
cause each Subsidiary of the Borrower to comply, in all material respects with
all applicable laws, ordinances, rules, regulations, and requirements of
Governmental Authorities (including, without limitation, ERISA) except where the
necessity of compliance therewith is contested in good faith by appropriate
proceedings or where the failure to comply with would not have a Materially
Adverse Effect.
SECTION 8.6. Inspection of Property, Books and Records. The Borrower
will keep, and will cause each Subsidiary of the Borrower to keep, proper books
of record and account in which full, true and correct entries shall be made of
all dealings and transactions in relation to its business and activities; and
will permit, and will cause each Subsidiary of the Borrower to permit,
representatives or designees of any Bank at such Bank's expense and upon notice
to the Borrower to visit and inspect any of their respective properties, to
examine and make abstracts from any of their respective books and records and to
discuss their respective affairs, finances and accounts with their respective
officers, employees and independent public accountants, all at such reasonable
times and as often as may reasonably be desired.
SECTION 8.7. Restricted Payments. The Borrower will not declare or
make, or permit any Subsidiary of the Borrower to declare or make, any
Restricted Payment, except:
(i) regular, scheduled or mandatory payments or prepayments of
principal and interest on Debt for Borrowed Money (but as to payments, if
any, of principal of and interest on Senior Subordinated Notes, only
regularly scheduled payments thereof to the extent such payments are
permitted, if at all, under the subordination provisions of the documents
governing such Debt as in effect on the date of execution thereof or as
amended with the prior written consent of the Required Banks);
<PAGE> 69
(ii) so long as there shall not exist a Default or Event of Default,
the payment by the Borrower of cash in lieu of shares of capital stock of
the Borrower upon the exercise of stock options pursuant to and in
accordance with the 1988 Payless Cashways, Inc. Employee Stock Plan, the
1992 Payless Cashways Incentive Stock Program and the Payless Cashways
Director Option Plan in each case as in effect on the date hereof or as
amended, modified or supplemented from time to time, provided, that the
aggregate cash paid by the Borrower in lieu of shares of capital stock of
the Borrower as permitted by this clause (ii) shall not exceed $2,000,000
during the term of this Agreement;
(iii) transactions with Affiliates as expressly permitted under Section
8.15;
(iv) payments to the Borrower by a Subsidiary or payments to a
Subsidiary by the Borrower on account of Debt permitted under Section
8.8(v); and
(v) additional Restricted Payments made during any fiscal year of the
Borrower commencing with the Borrower's 1995 fiscal year; provided, that
such payments may be made only so long as the Borrower maintains investment
grade status from either S&P or Moody's; provided, further, that the amount
of such Restricted Payments made during any such fiscal year, when added to
(i) the amount of Minority Investments made during such fiscal year
pursuant to Section 8.9(ix) and (ii) the amount of capital expenditures
made and capital lease obligations incurred during such fiscal year
pursuant to the first proviso to Section 8.12 (namely, those that would not
have been permitted during such fiscal year but for the operation of said
proviso), shall not exceed Excess Cash Flow for the previous fiscal year of
the Borrower calculated on a cumulative basis, such that any amounts
authorized by this proviso, but not actually utilized in the year
authorized, may be carried forward to succeeding fiscal years; and
provided, finally, that, notwithstanding the foregoing proviso, the
aggregate amount of such payments made during any one fiscal year, when
added to the aggregate amount of Minority Investments made during such
fiscal year pursuant to Section 8.9(ix), shall not exceed $5,000,000.
SECTION 8.8. Debt. The Borrower will not incur, assume or suffer to
exist, or permit any Subsidiary of the Borrower to incur, assume or suffer to
exist, any Debt, except:
(i) the Loans and the Letters of Credit;
(ii) the Senior Subordinated Notes;
(iii) Debt secured by Liens permitted by Section 8.10;
<PAGE> 70
(iv) Debt existing on the date hereof as set forth in Schedule 8.8
hereto (including, without limitation, Debt incurred in connection with the
Prudential Real Estate Financing), but not the increase, refunding, or
extension of maturity thereof in whole or in part;
(v) Debt of the Borrower to Somerville, and any Debt owing by
Somerville to the Borrower representing advances made by the Borrower to
Somerville to enable Somerville to make capital expenditures and to pay
obligations with respect to capital leases to the extent expressly
permitted by Section 8.12, provided that no such Debt payable to the
Borrower shall at any time be evidenced by an instrument unless such
instrument shall have been pledged to the Collateral Agent, for the benefit
of the Collateral Agent, the Administrative Agent, the Banks, and the
Merchandise Letter of Credit Bank pursuant to a supplement to the Note
Pledge Agreement which shall be in form and substance satisfactory to the
Administrative Agent;
(vi) Debt of the Borrower and its Subsidiaries as lessees under
capital leases to the extent expressly permitted under Section 8.12;
(vii) up to $15,000,000 in merchandise letters of credit issued under
the Merchandise Letter of Credit facility;
(viii) Debt incurred under the GE Credit Program Documents and other
agreements permitted under Section 8.18; and
(ix) Debt of the Borrower and its Subsidiaries (not permitted by any
of clauses (i) through (viii) of this Section 8.8) in an aggregate
principal amount not to exceed $1,000,000 at any one time outstanding.
SECTION 8.9. Investments. The Borrower will not make or acquire, and
will not permit any Subsidiary of the Borrower to make or acquire, any
Investment in any Person, except:
(i) Investments existing on the date hereof in the capital stock of
Subsidiaries;
(ii) Temporary Cash Investments, provided, however, that while any
Loans are outstanding such Investments shall not exceed $20,000,000 in the
aggregate outstanding at any one time;
(iii) Investments in promissory notes representing the non-cash
purchase price for the sales of assets permitted under Section 8.11,
provided that such promissory notes are pledged by the Borrower to the
Collateral Agent for the benefit of the Collateral Agent, the
Administrative Agent, the Banks and the Merchandise Letter of Credit Bank
pursuant
<PAGE> 71
to a Pledge Agreement Supplement, substantially in the form of
Annex A to the Note Pledge Agreement;
(iv) Investments existing on the date hereof as set forth in Schedule
8.9 hereto, but not the increase in amount thereof;
(v) civic or charitable type guarantees and Investments not to exceed
during the term of this Agreement $500,000 in aggregate amount;
(vi) Investments in the National Equity Fund, provided, that (A) the
tax characteristics of investments in such fund are no less advantageous to
the Borrower as such characteristics are on the date hereof and (B) new
Investments therein shall not exceed $1,100,000 in the aggregate during
each calendar year;
(vii) Investments made in connection with the incurrence of Debt
permitted by Section 8.8(v);
(viii) Investments in the Mexican Joint Venture not to exceed
$10,000,000 during the Borrower's 1994 fiscal year, $15,000,000 during the
Borrower's 1995 fiscal year, $15,000,000 during the Borrower's 1996 fiscal
year, $15,000,000 during the Borrower's 1997 fiscal year and $15,000,000
during the Borrower's 1998 fiscal year; provided that the total amount of
Investments permitted to be made pursuant to the provisions of this clause
(viii) shall not exceed $45,000,000 in the aggregate;
(ix) Minority Investments, in addition to those permitted under any
other clause of this Section 8.9, made during any fiscal year of the
Borrower commencing with the Borrower's 1995 fiscal year; provided that the
amount of such Minority Investments made during any such fiscal year, when
added to (i) the amount of Restricted Payments made during such fiscal year
pursuant to Section 8.7(v) and (ii) the amount of capital expenditures made
and capital lease obligations incurred during such fiscal year pursuant to
the first proviso to Section 8.12 (namely, those that would not have been
permitted during such fiscal year but for the operation of said proviso),
shall not exceed Excess Cash Flow for the previous fiscal year of the
Borrower calculated on a cumulative basis, such that any amounts authorized
by this proviso, but not actually utilized in the year authorized, may be
carried forward to succeeding fiscal years; and provided, further, that,
notwithstanding the foregoing proviso, the aggregate amount of such
Minority Investments made during any one fiscal year, when added to the
aggregate amount of Restricted Payments made during such fiscal year
pursuant to Section 8.7(v), shall not exceed $5,000,000; and
<PAGE> 72
(x) Investments (not permitted by any of clauses (i) through (ix) of
this Section 8.9) in an amount not exceeding $1,000,000 in the aggregate
outstanding at any one time.
SECTION 8.10. Negative Pledge. The Borrower will not create, assume
or suffer to exist, or permit any Subsidiary of the Borrower to create, assume
or suffer to exist, any Lien on any asset now owned or hereafter acquired by it,
except:
(i) existing Liens set forth on Schedule 8.10 hereto (including,
without limitation, Liens granted in connection with the Prudential Real
Estate Financing), but not any increase in the amount thereof (except for
increases in the amounts secured by the Liens relating to accounts under
the GE Credit Program Documents in accordance with the terms of such
documents);
(ii) Liens for taxes, assessments or governmental charges or claims the
payment of which is not at the time required by Section 8.2;
(iii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law incurred in the
ordinary course of business for sums not yet delinquent or being contested
in good faith, if such reserve or other appropriate provision, if any, as
shall be required by generally accepted accounting principles shall have
been made therefor;
(iv) with respect to assets other than Collateral, Liens (other than
any Lien imposed by ERISA) incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the performance
of tenders, statutory obligations, bids, leases, government contracts,
performance, surety and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(v) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances on real
property and improvements owned by the Borrower or any such Subsidiary not
interfering in any material respect with the ordinary conduct of the
business of the Borrower or such Subsidiary;
(vi) purchase money mortgages or other purchase money Liens or
security interests by the Borrower or any of its Subsidiaries (including,
without limitation, capital leases) upon any fixed or capital assets
hereafter acquired, so long as (i) any such mortgage, Lien or security
interest does not extend to or cover any other asset of the Borrower or
such Subsidiary, (ii) such security interest, mortgage or Lien
<PAGE> 73
secures the obligation to pay the purchase price of such asset (or the
obligation under such capital lease) only, and (iii) the aggregate Debt
secured by all such purchase money mortgages or other purchase money Liens
or security interests (other than capital leases) shall not exceed in the
aggregate for the Borrower and its Subsidiaries $2,000,000 outstanding at
any time;
(vii) in addition to other Liens permitted under this Section 8.10,
Liens by the Borrower on its partnership interest in the National Equity
Fund to secure the Borrower's investments in such fund to the extent
permitted under Section 8.9(vi);
(viii) purchase money Liens by the Borrower and its Subsidiaries upon
inventory of the Borrower and its Subsidiaries securing the purchase price
therefor not to exceed $1,000,000 in unpaid purchase price in the aggregate
at any one time;
(ix) judgment Liens to the extent that the related judgement does not
constitute an Event of Default under Section 9.1(k);
(x) Liens securing the Merchandise Letters of Credit as contemplated
by the Merchandise Letter of Credit Facility;
(xi) Liens granted pursuant to any Permitted Operating Lease
Transaction, provided that such Liens may extend only to the underlying
lease and to the specific assets being leased to the Borrower pursuant to
such Permitted Operating Lease Transaction; and
(xii) Liens (in addition to other Liens permitted under this Section
8.10) on assets not constituting Collateral; provided that the aggregate
fair value of all such assets shall not at any time exceed 5% of
Consolidated Tangible Net Worth.
SECTION 8.11. Consolidations, Mergers and Sales of Assets. The
Borrower will not, and will not permit any Subsidiary of the Borrower to, (i)
consolidate or merge with or into any other Person or enter into a partnership
or joint venture with another Person, provided that the Borrower or any of its
Subsidiaries may acquire interests in (A) the Mexican Joint Venture to the
extent permitted pursuant to the provisions of clause (viii) of Section 8.9 and
(B) other partnerships or joint ventures to the extent permitted by Section 8.9,
or (ii) sell, lease, assign or otherwise transfer all or any part of its assets
except (a) sales of inventory in the ordinary course of business and customer
receivable sales pursuant to the GE Credit Program Documents or any similar
program entered into in accordance with Section 8.18; (b) sales or transfers
(not permitted by any other
<PAGE> 74
provision of this Section) of any assets of the Borrower to any Person, provided
that (1) if the sale price thereof is equal to or greater than $5,000,000 then
such sale price shall not be less than the fair market value of each such asset
at the time of sale thereof as determined in good faith by the Board of
Directors of the Borrower, (2) prior to or concurrently with each such sale
which requires that the sale price therefor be not less than the fair market
value of such asset, the Borrower shall deliver evidence to the Administrative
Agent satisfactory to it of the fair market value at the time of sale of the
asset being sold as determined by the Board of Directors of the Borrower, (3)
not less than 50% of the sale price for each such asset (other than the Sioux
Falls (store number 216) and Fargo (store number 213) properties) shall be
payable in cash on the date of such sale, (4) the non-cash portion of the sale
price therefor, if any, shall be evidenced by one or more promissory notes which
shall be pledged to the Collateral Agent as provided in Section 8.9(iii), (5) no
such sale shall be permitted unless (x) the asset so sold shall be listed on
Schedule 8.11 or shall be sold pursuant to a Permitted Pad Sale or (y) the sale
price of the asset so sold, together with the sale price of all assets
(excluding assets described in subclause (x) immediately above) previously sold
under this clause (b) in the same fiscal year of the Borrower in which such
asset is being sold, shall not exceed $5,000,000 and (6) if such sale is to an
Affiliate it is made in compliance with Section 8.15; (c) the replacement in the
ordinary course of business of rolling stock and equipment of the Borrower and
its Subsidiaries; (d) the sale or other disposition, subject to the Lien of the
Collateral Agent, by the Borrower to any of its Subsidiaries which has executed
a guaranty substantially in the form of the Subsidiary Guarantee in the ordinary
course of business of machinery and equipment of the Borrower no longer
necessary for the proper conduct of the Borrower's business having a value
together with the value of all other property of the Borrower so sold or
disposed of in the same fiscal year of the Borrower of not greater than
$5,000,000 and the sale or other disposition, subject to the Lien of the
Collateral Agent, by the Subsidiaries of the Borrower to the Borrower in the
ordinary course of business of machinery and equipment of such Subsidiaries no
longer necessary for the proper conduct of such Subsidiaries' respective
businesses having a value together with the value of all other property of such
Subsidiaries so sold or disposed of in the same fiscal year of the Borrower of
not greater than $5,000,000; (e) the lease by the Borrower, as lessor, of those
stores and real estate described in Schedule 8.11 hereto and other real property
of the Borrower not necessary for the operations of the Borrower or any of its
Subsidiaries, in each instance under this clause (e) having a fair market value
of not greater than $5,000,000 individually, or $40,000,000 in the aggregate at
any one time for all real property leased under this clause (e), provided that
such leases shall be entered into with a Person who is not an Affiliate of the
Borrower on an arms-length basis for fair consideration and such leases shall
not be capital leases; (f) sales of assets pursuant to sale/lease-back
<PAGE> 75
transactions permitted under Section 8.21; and (g) the merger of any wholly
owned Subsidiary of the Borrower into the Borrower or the consolidation of any
wholly owned Subsidiary of the Borrower with the Borrower in which the Borrower
shall be the surviving corporation. The Borrower shall deliver to the
Administrative Agent no less than three Domestic Business Days prior to the date
of any expected sale or other disposition permitted under clause (b) (but only
if any such sale or disposition under such clause (b) has a sale price of
$1,000,000 or more) or (e) of this Section 8.11 written notice of the expected
date of the closing of such sale or other disposition and the expected date of
receipt by the Borrower of the Net Cash Proceeds with respect thereto.
SECTION 8.12. Capital Expenditures and Leases. The Borrower will not
make or accrue, and will not permit any of its Subsidiaries to make or accrue,
directly or indirectly, any expenditures for fixed or capital assets (including,
but not limited to payments on account of any mortgages, Liens or security
interests permitted pursuant to Section 8.10(vi)), and the Borrower will not
incur any obligations in respect of, or permit any of its Subsidiaries to incur
any obligations in respect of, capital leases, in excess in the aggregate for
the Borrower and its Subsidiaries for all such expenditures and leases, of the
following amounts during the periods set forth below:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
November 1994 fiscal
month of the Borrower $11,000,000
1995 fiscal year of
the Borrower $82,500,000
1996 fiscal year
of the Borrower $82,500,000
1997 and each subsequent
fiscal year of the Borrower $85,000,000
</TABLE>
provided, however, that the amount of such expenditures and leases permitted for
any fiscal year of the Borrower, commencing with the 1995 fiscal year of the
Borrower, shall be increased by an amount which, when added to (i) the amount of
Minority Investments made during such fiscal year pursuant to Section 8.9(ix)
and (ii) the amount of Restricted Payments made during such fiscal year pursuant
to Section 8.7(v), equals Excess Cash Flow for the previous fiscal year of the
Borrower calculated on a cumulative basis, such that any increased amounts
authorized by this proviso, but not actually utilized in the year authorized,
may be carried forward to succeeding fiscal years; and provided, further, that
if the aggregate amount of all such expenditures and leases during any fiscal
year of the Borrower (after the
<PAGE> 76
application of such expenditures and leases first to amounts available for such
expenditures and leases for such fiscal year pursuant to the operation of this
proviso) shall be less than the amount set forth in the table above for such
fiscal year then the amount of the permitted expenditures and leases for the
immediately succeeding fiscal year shall be increased by an amount equal to such
difference. In the event that the Borrower or any of its Subsidiaries shall
sell, or shall receive insurance proceeds in connection with the destruction of,
a fixed or capital asset owned by it and shall, within six months after the sale
or twenty-four months after the destruction of such fixed or capital asset,
purchase or enter into a capital lease with respect to a substantially similar
fixed or capital asset as a replacement for such sold or destroyed fixed or
capital asset, then for purposes of determining compliance with this Section
8.12, only that portion of the purchase price or capitalized lease obligation
paid, incurred or accrued by the Borrower or such Subsidiary, as the case may
be, for such replacement fixed or capital asset in excess of the sale price or
insurance proceeds, as the case may be, of the sold or destroyed similar fixed
or capital asset shall be used in determining such compliance with this
Section 8.12. Notwithstanding anything to the contrary contained in this
Section 8.12, there shall be excluded from the determination of the amount of
capital expenditures made by the Borrower (i) expenditures made during the
Borrower's 1994 and 1995 fiscal years in connection with the upgrading of the
Borrower's two stores in the Kansas City area destroyed by the 1993 flood
(stores 34 and 37) in an amount not to exceed $8,000,000, provided that such
stores shall have been rebuilt (although not necessarily upgraded) with the
insurance proceeds received in connection with such destruction and (ii)
expenditures made during any fiscal year to the extent of an amount equal to the
net cash proceeds of Permitted Pad Sales during such fiscal year of portions of
real property acquired by the Borrower after November 1, 1994. For purposes of
this Section 8.12, (i) all obligations incurred under a capital lease shall be
deemed to have been incurred on the date of execution of such lease and (ii) the
amount of incurrence of obligations with respect to a capital lease on such date
of execution of the lease shall be the capitalized amount thereof determined in
accordance with generally accepted accounting principles.
SECTION 8.13. No Negative Pledges. The Borrower will not, and will
not permit any Subsidiary of the Borrower to, enter into any agreement (other
than the Prudential Loan Agreement and the documents executed in connection
therewith) (a) prohibiting (or resulting in a default as a result of) the
creation or assumption of any Lien upon the properties or assets of the Borrower
or any of its Subsidiaries in favor of the Collateral Agent, the Administrative
Agent or the Banks, except for restrictions contained in any lease prohibiting
the mortgaging of such lease or of the property leased thereunder if either (i)
such lease has a fair market value on the date of execution thereof of less than
$100,000 or (ii) the Borrower or such
<PAGE> 77
Subsidiary shall have in good faith used reasonable efforts to obtain the
agreement of the lessor that is a party thereto to exclude such restrictions
from such lease and such lessor shall have refused so to agree, or (b)
requiring, if any obligations of the Borrower to the Administrative Agent or the
Banks are secured, that the Borrower or any Subsidiary also secure another
obligation (except as may be provided in the Senior Subordinated Note
Indenture).
SECTION 8.14. Termination of Plans. The Borrower will not, and will
not permit any Subsidiary of the Borrower to take any action to terminate any of
its Plans which could result in a material liability of the Borrower to any
Person.
SECTION 8.15. Transactions with Affiliates. The Borrower will not,
and will not permit any Subsidiary of the Borrower to, directly or indirectly,
enter into any transaction, whether or not in the ordinary course of business,
with any Affiliate other than on terms and conditions at least as favorable to
the Borrower, or the affected Subsidiary, as those that would be obtained
through an arm's length negotiation with an unaffiliated third party; provided
that nothing herein shall preclude (i) transactions between the Borrower and/or
its Subsidiaries and employees of the Borrower and/or its Subsidiaries which are
authorized by the non-management directors of the Borrower, (ii) transactions
between the Borrower and the Mexican Joint Venture, so long as such transactions
relate to information transfers or to the provision of intellectual property,
goods (so long as the Borrower is fully compensated for such transactions) or
management, consulting or advisory services by the Borrower, or (iii) the
performance by the Borrower of that certain Supply Agreement, dated as of
August 4, 1988, between Masco Corporation and the Borrower, as in effect on the
date hereof.
SECTION 8.16. Consolidated Net Worth. At the last day of any fiscal
quarter, beginning the first fiscal quarter of fiscal year 1995, the Borrower
shall not permit Consolidated Net Worth to be less than $400,000,000; provided,
however, that such minimum amount shall be increased by (i) an amount equal to
75% of positive net income for each fiscal quarter (other than any fiscal
quarter in respect of which the Borrower experienced a net loss) commencing on
or after November 26, 1994 and ending on or before such last day of such fiscal
quarter and (ii) an amount equal to 100% of the Net Cash Proceeds of any equity
issued by the Borrower subsequent to the Closing Date.
SECTION 8.17. Interest Coverage. The Interest Coverage Ratio (as
defined below) shall not, for any period of four consecutive fiscal quarters
ending in any of the months set forth below, be less than the ratio set forth
opposite such month below:
<PAGE> 78
<TABLE>
<CAPTION>
Period Amount
------ ------
Month In Which Four
Consecutive Fiscal Quarters End Ratio
------------------------------- -----
<S> <C>
November 1994, February,
May and August 1995 2.60: 1.00
November 1995, February,
May and August 1996 2.80: 1.00
November 1996, February,
May and August 1997 3.10: 1.00
November 1997 and February,
May and August 1998 3.50: 1.00
Each November, February,
May and August thereafter 3.80: 1.00
</TABLE>
For purposes of this Section, "Interest Coverage Ratio" means, for any period of
the Borrower, the ratio of (x) the sum of (i) EBITDA for such period plus (ii)
Rent Expense of the Borrower and its Consolidated Subsidiaries for such period
plus (iii) cash interest income of the Borrower and its Consolidated
Subsidiaries for such period to (y) cash interest expense (without deduction of
any cash interest income) plus Rent Expense of the Borrower and its Consolidated
Subsidiaries for such period.
SECTION 8.18. Customer Charge Sales. The Borrower will continue to
maintain a "Project Card" and commercial credit receivables sales and
administration program with Monogram Credit Card Bank of Georgia and General
Electric Capital Corporation pursuant to the GE Credit Program Documents or a
similar program (it being understood that a program shall not be deemed to be
dissimilar solely by virtue of the fact that the Borrower shall act as the
administrator or "servicer" of the receivables thereunder) with another Person
the terms and conditions of which are, in the aggregate, no less favorable to
the Borrower than those provided for in the GE Credit Program Documents as in
effect on the Closing Date.
SECTION 8.19. Accounting Changes. The Borrower will not, and will
not permit any of its Subsidiaries to, make any significant change in its
accounting treatment or financial reporting practices except as permitted or
required by generally accepted accounting principles in effect from time to
time. The Borrower will not change its fiscal year or the calculation of its
fiscal quarter ends.
SECTION 8.20. Amendment and Modification of Certain Documents. The
Borrower shall not, directly or indirectly, amend, modify, supplement, waive
compliance with, or assent to noncompliance with, (i) any term, provision or
condition of the
<PAGE> 79
Restated Articles of Incorporation of the Borrower or (ii) any term, provision
or condition of any of the documents governing or evidencing the Senior
Subordinated Notes which, (A) in the case of either clause (i) or clause (ii),
the Administrative Agent deems material (including, without limitation, relating
to events of default, acceleration rights, interest rates, tenor, subordination,
covenants, prohibitions against amending the Credit Documents and the
definitions with respect thereto (including, without limitation, definitions of
"Senior Indebtedness" and "Permitted Indebtedness")) or (B) in the case of
clause (ii), places any further restrictions on the Borrower or its Subsidiaries
or increases the obligations of the Borrower thereunder or confers on the
holders thereof any additional rights. The Administrative Agent and the Banks
agree that if any of the documents governing or evidencing the Senior
Subordinated Notes must comply with the Trust Indenture Act of 1939 and the SEC
requires that certain changes be made to such documents to comply with such
statute, then such changes shall be permitted so long as (A) such changes do not
relate to covenants, events of default, tenor, rights of acceleration, interest
rates, subordination, prohibitions against amending the Credit Documents or the
definitions with respect thereto (including, without limitation, definitions of
"Senior Indebtedness" and "Permitted Indebtedness") and (B) such changes do not
place any further restrictions on the Borrower or its Subsidiaries or increase
the obligations of the Borrower thereunder or confer on the holders thereof any
additional rights. The Borrower shall not, and shall not permit or suffer any
Subsidiary to, directly or indirectly, amend, modify, supplement, waive
compliance with, or assent to noncompliance with, any term, provision or
condition of the Prudential Loan Agreement or any of the other documents
governing or evidencing the Prudential Real Estate Financing as in effect on the
date hereof (A) which the Administrative Agent deems material (including,
without limitation, relating to events of default, acceleration or other rights,
substitution of collateral, the non-recourse nature of such financing, covenants
and prohibitions against amending the Credit Documents) or (B) which the
Administrative Agent reasonably determines would place any further material
restrictions on the Borrower or its Subsidiaries or materially increase the
obligations of the Borrower or any of its Subsidiaries thereunder or confer on
the holders thereof any material additional rights.
SECTION 8.21. Sale/Lease-Backs. The Borrower will not, and will not
permit any Subsidiary of the Borrower to, enter into any arrangements, directly
or indirectly, with any Person, whereby the Borrower or any such Subsidiary
shall sell or transfer any property, whether now owned or hereafter acquired,
used or useful in its business, in connection with the rental or lease of the
property so sold or transferred; provided that the Borrower and its Subsidiaries
may sell the St. Cloud property (store number 257) and any other property
acquired after the date hereof pursuant to a sale/lease-back transaction so long
as the economic terms of such transaction are fair and reasonable.
<PAGE> 80
SECTION 8.22. Environmental Matters. (a) The Borrower will not, and
will not permit any of its Subsidiaries to, use, generate, manufacture, produce,
store, release, discharge or dispose of on, under or about any real property
owned or leased (other than any such leased property which constitutes a minor
part of a larger piece of property over which neither the Borrower nor any of
its Subsidiaries has any control (such as a lease of a small number of parking
places in a large parking lot)) by the Borrower or any of its Subsidiaries (such
owned or leased real property, the "Property"), or transport to or from the
Property, any Hazardous Substance (as defined below), or (to the extent within
the Borrower's or such Subsidiary's control) permit any other Person to do so,
where such could reasonably be expected to have a Materially Adverse Effect.
(b) The Borrower shall keep and maintain and shall cause each
Subsidiary of the Borrower to keep and maintain, the Property in compliance with
any Environmental Law (as defined below) where the failure to do so could
reasonably be expected to have a Materially Adverse Effect.
(c) In the event that any investigation, site monitoring,
containment, cleanup, removal, restoration or other remedial work of any kind or
nature (the "Remedial Work") with respect to the Property is required to be
performed by the Borrower or any of its Subsidiaries under any applicable local,
state or federal law or regulation, any judicial order, or by any governmental
entity because of, or in connection with, any current or future presence,
suspected presence, release or suspected release of a Hazardous Substance in or
into the air, soil, groundwater or surface water at, on, under or within the
Property (or any portion thereof) which could reasonably be expected to have a
Materially Adverse Effect, the Borrower or such Subsidiary shall within thirty
(30) days after written demand for performance thereof by the Administrative
Agent (or such shorter period of time as may be required under any applicable
law, regulation, order or agreement), commence and thereafter diligently
prosecute to completion, all such Remedial Work.
(d) The Borrower will defend, indemnify and hold harmless the
Administrative Agent, the Collateral Agent and the Banks, and their respective
employees, agents, officers and directors, from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs and expenses of
whatever kind or nature known or unknown, contingent or otherwise, arising out
of, or in any way relating to the violation of, noncompliance with or liability
under any Environmental Law applicable to the operations of the Borrower or any
Subsidiary or the Property, or any orders, requirements or demands of
Governmental Authorities related thereto, including, without limitation,
attorneys' and consultants' fees, investigation and laboratory fees, response
costs, court costs and litigation expenses, except to the extent that any of the
<PAGE> 81
foregoing arise out of the gross negligence or willful misconduct of the party
seeking indemnification therefor. This indemnity shall continue in full force
and effect regardless of the termination of this Agreement.
(e) As used herein, (i) "Environmental Law" means any federal, state
or local law, statute, ordinance, or regulation now or hereafter in effect
pertaining to health, industrial hygiene, or the environmental conditions on,
under or about the Property, and (ii) the term "Hazardous Substance" means those
substances included within the definitions of "hazardous substances", "hazardous
materials", "toxic substances", or "solid waste" under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. ss 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42
U.S.C. ss 6901 et seq. and the Hazardous Materials Transportation Act, 49 U.S.C.
ss 1801 et seq., and in the regulations promulgated pursuant to said laws, and
such other substances, materials and wastes which are or become regulated under
applicable local, state or federal law, or which are classified as hazardous or
toxic under federal, state, or local laws or regulations.
SECTION 8.23. Business Segments. The Borrower will not, and will not
permit any Subsidiary of the Borrower to, suspend the operation of a segment
material to the operation of its business as presently conducted, which
suspension would materially impair the operations of the Borrower and its
Subsidiaries taken as a whole.
SECTION 8.24. Subsidiary Guarantee. The Borrower will cause each
Subsidiary of the Borrower which at any time has a net payable owing to the
Borrower in excess of $10,000,000 to execute and deliver to the Collateral Agent
a guarantee of the Bank Obligations, and such other documents and opinions in
connection therewith as the Administrative Agent shall reasonably request, in
form and substance satisfactory to the Administrative Agent. Such guarantee and
such other documents shall be delivered to the Collateral Agent no later than
thirty days after the date on which such Subsidiary has such a net payable owing
to the Borrower.
SECTION 8.25. Further Assurances. The Borrower shall, at its cost
and expense, upon request of the Administrative Agent, duly execute and deliver,
or cause to be duly executed and delivered, such further instruments and do and
cause to be done such further acts as may be necessary or proper in the
reasonable opinion of the Administrative Agent to carry out more effectually the
provisions and purposes of this Agreement.
SECTION 8.26. Debt to Capitalization Ratio. The Borrower shall not
permit the Debt to Capitalization Ratio to be more, on the last day of any
fiscal quarter of the Borrower
<PAGE> 82
ending during any month set forth below, than the ratio set forth opposite the
applicable month below:
<TABLE>
<CAPTION>
Month Ratio
----- -----
<S> <C>
November 1994 .610 to 1.00
February 1995 .629 to 1.00
May 1995 .614 to 1.00
August 1995 .599 to 1.00
November 1995 .571 to 1.00
February 1996 .589 to 1.00
May 1996 .572 to 1.00
August 1996 .554 to 1.00
November 1996 .521 to 1.00
February 1997 .540 to 1.00
May 1997 .520 to 1.00
August 1997 .500 to 1.00
November 1997 .467 to 1.00
February 1998 .491 to 1.00
May 1998 .472 to 1.00
August 1998 .451 to 1.00
November 1998 .392 to 1.00
February 1999 .421 to 1.00
May 1999 .400 to 1.00
August 1999 .379 to 1.00
November 1999 .301 to 1.00
</TABLE>
SECTION 8.27. Independence of Covenants. All covenants hereunder
shall be given independent effect so that if a particular action or condition is
not permitted by any of such covenants, the fact that it would be permitted by
an exception to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default or Event of Default if such action
is taken or condition exists.
SECTION 9. DEFAULTS
SECTION 9.1. Events of Default. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of or
interest on any Loan or any Reimbursement Obligation, any fees or any other
amount payable hereunder (including, without limitation, any prepayments
required to be made by Section 2.7) or under the Notes, the Applications, the
Security Documents or the Fee Letter;
(b) the Borrower shall fail to observe or perform any covenant
contained in Section 8 hereof (other than Sections 8.1(a) and (b), 8.2, 8.3(a),
8.4 and 8.6), or shall fail to observe or perform any covenant contained in
Section 8.1(a) or (b) for 5 days, or shall fail to observe or perform any
covenant
<PAGE> 83
contained in Section 8.3(a) or 8.6 for 10 days, or shall fail to observe or
perform any covenant contained in Section 8.2 or 8.4 for 30 days after written
notice thereof has been given to the Borrower by the Administrative Agent at the
request of any Bank;
(c) the Borrower or any Subsidiary of the Borrower, as the case may
be, shall fail to observe or perform any covenant or agreement contained in this
Agreement (other than those covered by clause (a) or (b) above) or any other
Credit Document for 30 days after written notice thereof has been given to the
Borrower by the Administrative Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
the Borrower or any of its Subsidiaries in this Agreement, any other Credit
Document or in any certificate, financial statement or other document delivered
pursuant to this Agreement shall prove to have been incorrect in any material
respect when made (or deemed made);
(e) the Borrower or any Subsidiary of the Borrower shall fail to make
any payment in respect of any Debt aggregating $3,000,000 or more (other than
the Notes) when due or within any applicable grace period or any event or
condition shall occur which results in the acceleration of the maturity of any
Debt aggregating $3,000,000 or more of the Borrower or any Subsidiary of the
Borrower or the termination of any commitment to lend any Debt or enables (or,
with the giving of notice or lapse of time or both, would enable) the holder of
such Debt or any Person acting on such holder's behalf to accelerate the
maturity thereof or terminate any commitment to lend such Debt;
(f) the Borrower or any Subsidiary of the Borrower shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(g) an involuntary case or other proceeding shall be commenced
against the Borrower or any Subsidiary of the Borrower seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be
<PAGE> 84
entered against the Borrower or any Subsidiary of the Borrower under the federal
bankruptcy laws as now or hereafter in effect;
(h) any ERISA Event shall have occurred with respect to a Plan and,
30 days after notice thereof shall have been given to the Borrower by the
Administrative Agent (i) such ERISA Event shall still exist and (ii) the sum
(determined as of the date of occurrence of such ERISA Event) of the
Insufficiency of such Plan and the Insufficiency of any and all other Plans with
respect to which an ERISA Event shall have occurred and then exist (or, in the
case of a Plan with respect to which an ERISA Event described in clauses (b),
(c), (e) and (f) of the definition of ERISA Event shall have occurred and then
exist, the liability related thereto) is equal to or greater than $3,000,000;
(i) the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate of either of them shall have been notified by the sponsor of a
Multiemployer Plan that it has incurred Withdrawal Liability to such
Multiemployer Plan in an amount which, when aggregated with all other amounts
required to be paid to Multiemployer Plans by the Borrower, any Subsidiary of
the Borrower or any ERISA Affiliate of either of them as Withdrawal Liability
(determined as of the date of such notification), exceeds $5,000,000 or requires
payments exceeding $2,000,000 per annum;
(j) the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate of either of them shall have been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in reorganization or is being
terminated, within the meaning of Title IV of ERISA, if as a result of such
reorganization or termination the aggregate annual contributions of the
Borrower, the Subsidiaries of the Borrower and the ERISA Affiliates of either of
them to all Multiemployer Plans which are then in reorganization or being
terminated have been or will be increased over the aggregate amounts contributed
to such Multiemployer Plans for the respective plan year of each such
Multiemployer Plan immediately preceding the plan year in which the
reorganization or termination occurs by an amount exceeding $2,000,000;
(k) a judgment or order for the payment of money in excess of
$5,000,000 shall be rendered against the Borrower or any Subsidiary of the
Borrower and such judgment or order shall continue unsatisfied and unstayed for
a period of 20 days or an attachment or execution against any of the property of
the Borrower or any Subsidiary of the Borrower for an amount in excess of
$5,000,000 shall remain unstayed or undismissed for a period of 20 days;
(l) this Agreement or any of the Credit Documents shall cease for any
reason to be in full force and effect other than by reason of any action or
inaction of the Collateral Agent, the Administrative Agent or the Banks, or the
Borrower or any of
<PAGE> 85
its Subsidiaries shall so assert in writing, or the security interests created
by the Security Documents shall cease to be enforceable or shall not have the
priority purported to be created thereby;
(m) there shall occur the loss, theft, substantial damage to or
destruction of any property of the Borrower or its Subsidiaries not fully
covered by insurance, which by itself or with other such losses, thefts, damages
or destructions could reasonably be expected to render the Borrower unable to
perform its material obligations hereunder or under the other Credit Documents,
or there shall occur the exercise of the right of condemnation or eminent domain
for any property of the Borrower or its Subsidiaries which by itself or with
other such exercises of the right of condemnation or eminent domain could
reasonably be expected to render the Borrower unable to perform its material
obligations hereunder or under the other Credit Documents; or
(n) a Change of Control shall have occurred;
then, and in every such event, the Administrative Agent shall (i) if requested
by the Required Banks, by notice to the Borrower terminate the Revolving
Commitments and they shall thereupon terminate, and (ii) if requested by the
Required Banks, by notice to the Borrower declare the Notes (together with
accrued interest thereon) and all other Bank Obligations and liabilities of the
Borrower hereunder and under the other Credit Documents (including, without
limitation, all amounts of L/C Obligations, whether or not the beneficiaries of
the then outstanding Letters of Credit shall have presented the documents
required thereunder) to be, and the Notes and all other Bank Obligations and
liabilities of the Borrower hereunder and under the other Credit Documents
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) shall thereupon become, immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower; provided that, without any notice to
the Borrower or any other act by the Administrative Agent or the Banks, in the
case of the occurrence of (x) any of the Events of Default specified in clause
(f) or (g) above with respect to the Borrower or any of the Events of Default
specified in clause (e) above with respect to the Prudential Real Estate
Financing as to which Prudential either accelerates the maturity of any of the
Debt owing by the Borrower or any of its Subsidiaries to Prudential with respect
thereto or otherwise exercises any of its rights or remedies to liquidate,
realize or foreclose upon any collateral securing such Debt, or (y) any of the
Events of Default specified in clause (e) above with respect to the Debt
evidenced or governed by the Senior Subordinated Notes, and the receipt by the
trustee under the Senior Subordinated Note Indenture of a notice from the
Administrative Agent under Section 1303 thereof, the Revolving Commitments shall
thereupon terminate and the Notes (together
<PAGE> 86
with accrued interest thereon) and all other obligations and liabilities of the
Borrower hereunder and under the other Credit Documents (including, without
limitation, all amounts of L/C Obligations, whether or not the beneficiaries of
the then outstanding Letters of Credit shall have presented the documents
required thereunder) shall become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower.
With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Borrower shall at such time deposit in
a cash collateral account opened by the Collateral Agent an amount equal to 103%
of the aggregate then undrawn and unexpired amount of such Letters of Credit.
Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of Credit
and of such time drafts at the respective maturities thereof, and the unused
portion thereof after all such Letters of Credit shall have expired or been
fully drawn upon and all such time drafts shall have been paid, if any, shall be
applied to repay other Bank Obligations of the Borrower hereunder and under the
Notes and the other Credit Documents. After all such Letters of Credit shall
have expired or been fully drawn upon, all such time drafts shall have matured,
all Reimbursement Obligations shall have been satisfied and all other
obligations of the Borrower hereunder and under the Notes and the other Credit
Documents shall have been paid in full, the balance, if any, in such cash
collateral account shall be returned to the Borrower.
SECTION 9.2. Application Of Proceeds. After the occurrence of an
Event of Default and acceleration of the Bank Obligations, the proceeds of the
Collateral and all other payments received under this Agreement shall be applied
by the Administrative Agent to payment of the Bank Obligations in the following
order unless a court of competent jurisdiction shall otherwise direct:
(i) FIRST, to payment of all costs and expenses of the Administrative
Agent, the Collateral and the Banks incurred in connection with the
preservation, collection and enforcement of the Bank Obligations or of the
security interests granted to the Collateral Agent pursuant to the Security
Documents, including, without limitation, any amounts advanced by the
Administrative Agent, the Collateral Agent or the Banks to protect or
preserve the Collateral;
(ii) SECOND, to payment of that portion of the Bank Obligations
constituting accrued and unpaid interest and fees ratably amongst the
Administrative Agent and the Banks in accordance with the proportion which
the accrued interest and fees constituting the Bank Obligations owing to
the Administrative Agent and
<PAGE> 87
each such Bank at such time bears to theaggregate amount of accrued
interest and fees constituting the Bank Obligations owing to the
Administrative Agent and all of the Banks at such time until such interest
and fees shall be paid in full;
(ii) THIRD, to payment of the principal of the Bank Obligations
(including the face amount of and Reimbursement Obligations in respect of
the Letters of Credit) ratably amongst the Banks in accordance with the
proportion which the principal amount of the Bank Obligations owing to each
such Bank bears to the aggregate principal amount of the Bank Obligations
owing to all of the Banks until such principal of the Bank Obligations
shall be paid in full;
(iii) FOURTH, to the payment of all other Bank Obligations ratably
amongst the Banks in accordance with the proportion which the amount of
such other Bank Obligations owing to each such Bank bears to the aggregate
principal amount of such other Bank Obligations owing to all of the Banks
until such other Bank Obligations shall be paid in full; and
(iv) FIFTH, the balance, if any, after all of the Bank Obligations
have been satisfied, shall be returned to the Borrower or paid over to such
other Person as may be required by law.
The Borrower acknowledges and agrees that it shall remain liable to
the extent of any deficiency between the amount of the proceeds of the
Collateral and all other payments received under this Agreement and the
aggregate amount of the sums referred to in the first through fourth clauses
above.
SECTION 10. THE ADMINISTRATIVE AGENT AND
THE COLLATERAL AGENT
SECTION 10.1 Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers, under this Agreement and the Notes and
the other Credit Documents as are delegated to the Administrative Agent and the
Collateral Agent, as the case may be, by the terms hereof or thereof, together
with all such powers as are reasonably incidental thereto.
SECTION 10.2 Administrative Agent, Collateral Agent and Affiliates.
CIBC shall have the same rights and powers under this Agreement as any other
Bank and may exercise or refrain from exercising the same as though it were not
the Administrative Agent or the Collateral Agent, and CIBC and its Affiliates
may accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or Affiliate
<PAGE> 88
of the Borrower as if it were not the Administrative Agent or the Collateral
Agent.
SECTION 10.3 Action by Agents. The obligations of the Administrative
Agent and the Collateral Agent hereunder and under the other Credit Documents
are only those expressly set forth herein and therein. Without limiting the
generality of the foregoing, neither the Administrative Agent nor the Collateral
Agent shall be required to take any action with respect to any Default, except
as expressly provided with respect to the Administrative Agent in Section 9
hereof and with respect to the Collateral Agent in the Security Documents.
SECTION 10.4 Consultation with Experts. Each of the Administrative
Agent and the Collateral Agent may consult with legal counsel (who may be
counsel for the Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
SECTION 10.5 Liability of Agents. Notwithstanding any other
provision, express or implied, to the contrary in this Agreement or any other
Credit Document, neither the Administrative Agent or the Collateral Agent nor
any of their directors, officers, agents, or employees shall be liable for any
action taken or not taken by them in connection herewith or in connection with
any other Credit Document (i) with the consent or at the request of the Required
Banks or, in the case of any matter for which the consent of all the Banks is
required to effect an amendment pursuant to Section 11.5, with the consent of
all the Banks or (ii) in the absence of their own gross negligence or willful
misconduct. Neither the Administrative Agent or the Collateral Agent nor any of
their directors, officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with this Agreement, any other Credit Document
or any borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of the Borrower; (iii) the satisfaction of any condition
specified in Section 6 (except where the satisfaction of the Administrative
Agent is specifically required); or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes, any Letter of Credit, any other Credit
Document or any other instrument or writing furnished in connection herewith or
therewith. Neither the Administrative Agent nor the Collateral Agent shall
incur any liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire or similar writing)
believed by it in good faith to be genuine or to be signed by the proper party
or parties.
SECTION 10.6 Indemnification. Each Bank shall, ratably in accordance
with the amount of its Revolving
<PAGE> 89
Commitments indemnify the Administrative Agent and the Collateral Agent (to the
extent not reimbursed by the Borrower and without limiting the obligation of the
Borrower to do so) against any cost, expense (including counsel fees and
disbursements), claim, demand, action, loss, damage, penalty, judgment,
disbursement or liability (except such as result from the Administrative Agent's
or the Collateral Agent's gross negligence or willful misconduct) that the
Administrative Agent or the Collateral Agent may suffer or incur in connection
with this Agreement or any other Credit Document or any action taken or omitted
by the Administrative Agent or the Collateral Agent hereunder or thereunder.
The agreements in this Section shall survive the payment of the Notes and all
other amounts payable hereunder.
SECTION 10.7 Credit Decision. Each Bank expressly acknowledges that
neither the Administrative Agent or the Collateral Agent nor any of their
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Administrative
Agent hereinafter taken, including any review of the affairs of the Borrower,
shall be deemed to constitute any representation or warranty by the
Administrative Agent or the Collateral Agent to any Bank. Each Bank
acknowledges that it has, independently and without reliance upon the
Administrative Agent, the Collateral Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it will, independently and without reliance upon the Administrative Agent,
the Collateral Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under this Agreement.
Except for notices, reports and other documents expressly required to be
furnished to the Banks by the Administrative Agent hereunder, neither the
Administrative Agent nor the Collateral Agent shall have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Administrative Agent, the Collateral Agent or any of their
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
SECTION 10.8 Successor Agents. Each of the Administrative Agent and
the Collateral Agent may resign at any time by giving written notice thereof to
the Banks and the Borrower. Upon any such resignation, the Required Banks shall
have the right to appoint a successor Administrative Agent or Collateral Agent,
as the case may be. If no successor Administrative Agent or Collateral Agent,
as the case may be, shall have been so appointed by the Required Banks, and
shall have accepted such appointment, within 30 days after the retiring agent's
giving of notice of resignation, then the retiring agent may, on behalf of the
Banks, appoint a successor Administrative
<PAGE> 90
Agent or Collateral Agent, as the case may be, which shall be a Bank or a
commercial bank organized under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$100,000,000. Upon the acceptance of its appointment as Administrative Agent or
Collateral Agent, as the case may be, hereunder by a successor Administrative
Agent or Collateral Agent, as the case may be, such successor agent shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Administrative Agent or Collateral Agent, as the case may be, and, upon
such acceptance of appointment, the retiring agent shall be discharged from its
duties and obligations hereunder. After any retiring agent's resignation
hereunder as Administrative Agent or Collateral Agent, the provisions of this
Section 10 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent or Collateral Agent, as the case
may be.
SECTION 11. MISCELLANEOUS
SECTION 11.1. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telecopy or similar writing) and shall be given to such party at its address or
telecopy number set forth on Schedule I hereof or such other address or telecopy
number as such party may hereafter specify for the purpose by notice to the
Administrative Agent and the Borrower. Each such notice, request or other
communication shall be given (i) by hand delivery, (ii) by nationally recognized
courier service or (iii) by telecopy, receipt confirmed, except that the
delivery of the financial statements required under Section 8.1(a) and
(b) (together with all other certificates to be delivered therewith) may also be
made by first class mail. Each such notice, request or communication shall be
effective (i) if delivered by hand or by nationally recognized courier service,
when delivered at the address specified in this Section, (ii) if given by
telecopy, when such telecopy is transmitted to the telecopy number, as the case
may be, specified in this Section and the appropriate answerback or confirmation
is received, and (iii) with respect to the delivery of the aforesaid financial
statements and other certificates by first class mail, when mailed.
SECTION 11.2. No Waivers. No course of dealing between the
Administrative Agent any Bank and the Borrower or any failure or delay by the
Administrative Agent or any Bank in exercising any right, power or privilege
hereunder or under any Note or other Credit Document shall operate as a waiver
of any right, power or privilege hereunder or under any Note or other Credit
Document, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
<PAGE> 91
SECTION 11.3. Expenses; Documentary Taxes. Whether or not any Loans
are made or Letters of Credit are issued hereunder, the Borrower shall pay
(i) all out-of-pocket expenses of the Administrative Agent and the Collateral
Agent, including, without limitation, reasonable fees and disbursements of
Simpson Thacher & Bartlett, counsel for the Administrative Agent and the
Collateral Agent, in connection with the preparation of this Agreement and the
other Credit Documents, any waiver or consent hereunder or thereunder, any
amendment hereof or thereof, any Default or alleged Default hereunder and the
protection, maintenance and preservation of the Collateral and (ii) if an Event
of Default occurs, all out-of-pocket expenses incurred by the Administrative
Agent, the Collateral Agent and the Banks, including, without limitation, fees
and disbursements of counsel (including, without limitation, the allocated costs
of in-house counsel), in connection with such Event of Default and collection
and other enforcement proceedings resulting therefrom. The Borrower shall
indemnify and hold harmless the Administrative Agent, the Collateral Agent and
each Bank against any transfer taxes, excise taxes, documentary taxes,
assessments or charges made by any Governmental Authority by reason of the
execution and delivery of this Agreement, the Notes or any other Credit
Document, any modifications thereof or in connection with the Collateral.
SECTION 11.4. Sharing of Set-Offs. Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to the Revolving Notes held by it or the Reimbursement Obligations
owing to it which is greater than the proportion received by any other Bank in
respect of the aggregate amount of principal and interest due with respect to
the Revolving Notes held by such other Bank and the Reimbursement Obligations
owing to it, the Bank receiving such proportionately greater payment shall
purchase such participation in the Revolving Notes held by the other Banks
and/or the Reimbursement Obligations owing to them, and such other adjustments
shall be made, as may be required so that all such payments of principal and
interest with respect to the Revolving Notes held by the Banks or the
Reimbursement Obligations owing to them shall be shared by the Banks pro rata;
provided that nothing in this Section shall impair the right of any Bank to
exercise any right of set-off or counterclaim it may have and to apply the
amount subject to such exercise to the payment of indebtedness of the Borrower
other than its indebtedness under the Revolving Notes or the Reimbursement
Obligations owing to it. Each Bank further agrees that if it shall hold a
Revolving Note and a Money Market Loan Note, any payment resulting from its
exercise of any right described in this Section 11.4 shall be applied first to
the aggregate amount owing under its Revolving Note and second, to the aggregate
amount owing under its Money Market Loan Note. The Borrower agrees, to the
fullest extent it may effectively do so under applicable law, that any holder of
a participation in a Note or
<PAGE> 92
Reimbursement Obligations, whether or not acquired pursuant to the foregoing
arrangements, may exercise rights of set-off or counterclaim and other rights
with respect to such participation as fully as if such holder of a participation
were a direct creditor of the Borrower in the amount of such participation.
SECTION 11.5. Amendments and Waivers. Any provision of this
Agreement, the Revolving Notes or the other Credit Documents (other than the
Money Market Loan Notes) may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrower and the Required
Banks (and, (i) if the rights or duties of the Administrative Agent or the
Collateral Agent are affected thereby, by the Administrative Agent or the
Collateral Agent, as the case may be, and (ii) if the rights or duties of the
Letter of Credit Bank are affected thereby, by the Administrative Agent or the
Collateral Agent and the Letter of Credit Bank); provided that no such amendment
or waiver shall, unless signed by all the Banks (other than Defaulting Banks)
affected thereby (i) increase or decrease the Revolving Commitment of any Bank
or subject any Bank to any additional obligation to extend credit hereunder,
(ii) reduce the principal of or rate of interest on any Loan or any fees
hereunder, (iii) postpone any of the semi-annual mandatory commitment reductions
referred to in Section 2.3(b) or the date fixed for any payment of principal of
or interest on any Revolving Loan or any fees hereunder, (iv) change the
definition of "Required Banks", (v) amend or waive any provision of this Section
11.5, (vi) change the percentage of the Revolving Commitments or the aggregate
unpaid principal amount of the Revolving Notes or the number of Banks which
shall be required for the Administrative Agent, the Banks or any of them to take
any action under this Section or any other provision of this Agreement, (vii)
substitute, discharge, release or surrender all or substantially all of the
Collateral except as permitted in the Credit Documents or (viii) release any
Guarantee of the Bank Obligations.
SECTION 11.6.A. Successors and Assigns; Participations;
Purchasing Banks.
(a) This Agreement shall be binding upon and inure to the benefit of
the Borrower, the Banks, the Administrative Agent, the Collateral Agent, all
future holders of the Notes and the Participating Interests and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of each Bank.
(b) Any Bank may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
owing to such Bank, any Note held by such Bank, any Revolving Commitment of such
Bank or any other interest of such Bank hereunder and
<PAGE> 93
under the other Credit Documents, including, without limitation, its interest in
the L/C Obligations. In the event of any such sale by a Bank of participating
interests to a Participant, such Bank's obligations under this Agreement to the
other parties to this Agreement shall remain unchanged, such Bank shall remain
solely responsible for the performance thereof, such Bank shall remain the
holder of any such Note for all purposes under this Agreement and the other
Credit Documents, and the Borrower and the Administrative Agent shall continue
to deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Agreement and the other Credit Documents. The
Borrower agrees that if amounts outstanding under this Agreement, the Notes or
any other Credit Document are due or unpaid, or shall have been declared or
shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement and the other
Credit Documents to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement or the other
Credit Documents, provided that such Participant shall only be entitled to such
right of setoff if it shall have agreed in the agreement pursuant to which it
shall have acquired its participating interest to share with the Banks the
proceeds thereof as provided in Section 11.4. The Borrower also agrees that
each Participant shall be entitled to the benefits of Sections 5.3, 5.4, 5.5,
5.9 and 11.10 with respect to its participation in the Revolving Commitments and
the Loans outstanding from time to time; provided, that no Participant shall be
entitled to receive any greater amount pursuant to such Sections than the
transferor Bank would have been entitled to receive in respect of the amount of
the participation transferred by such transferor Bank to such Participant had no
such transfer occurred. Each Bank agrees that any agreement between such Bank
and any Participant in respect of such participating interest shall not restrict
such Bank's right to agree to any amendment, supplement or modification to this
Agreement or the other Credit Documents except (to the extent such Participant
would be affected thereby) in connection with the matters specified in clauses
(i) through (viii) of Section 11.5.
(c) Any Bank may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to any Bank or
any affiliate thereof and, with the consent of the Borrower (which shall not be
unreasonably withheld or delayed but shall not be required to be obtained after
the occurrence and during the continuance of an Event of Default), to one or
more additional banks or financial institutions ("Purchasing Banks") all or a
portion of its interests, rights and obligations under this Agreement and the
other Credit Documents (including, without limitation, all or a portion of its
Revolving Commitment and the same portion of the Revolving Loans at the time
owing to it and the Revolving Notes held by it, but excluding interests in Money
Market Loans and
<PAGE> 94
Money Market Loan Notes, which are addressed in Section 11.6B); provided,
however, that each Assignment shall be of a constant, not a varying, percentage
of all of the assigning Bank's rights and obligations under this Agreement;
provided, further, that the Revolving Commitments purchased by any such
Purchasing Bank shall be equal to at least $10,000,000 in the case of a
Purchasing Bank that is not then a Bank; and provided, finally, that, in the
case of any proposed assignment to a Purchasing Bank that is not then a Bank,
the transferor Bank shall afford the Borrower a reasonable period of time (not
to exceed five days) to enlist a substitute Purchasing Bank of the Borrower's
choice to accept such assignment on economic and other terms no less favorable
to the transferor Bank. Each sale pursuant to this Section 11.6(c) shall be
effected pursuant to a Commitment Transfer Supplement, substantially in the form
of Exhibit N, executed by such Purchasing Bank, such transfer or Bank (and, in
the case of a Purchasing Bank that is not then a Bank or an affiliate thereof,
by the Borrower and the Administrative Agent) and delivered to the
Administrative Agent for its acceptance for recording in the Register. Upon
such execution, delivery, acceptance and recording, from and after the Transfer
Effective Date (as defined in such Commitment Transfer Supplement), (x) the
Purchasing Bank thereunder shall be a party hereto and, to the extent provided
in such Commitment Transfer Supplement, have the rights and obligations of a
Bank hereunder and under the other Credit Documents with a Revolving Commitment
as set forth therein, and (y) the transferor Bank thereunder shall, to the
extent provided in such Commitment Transfer Supplement, be released from its
obligations under this Agreement (and, in the case of a Commitment Transfer
Supplement covering all or the remaining portion of a transferor Bank's rights
and obligations under this Agreement, such transferor Bank shall cease to be a
party hereto). Such Commitment Transfer Supplement shall be deemed to amend
this Agreement to the extent, and only to the extent, necessary to reflect the
addition of such Purchasing Bank and the resulting adjustment of Revolving
Commitment Percentages arising from the purchase by such Purchasing Bank of all
or a portion of the rights and obligations of such transferor Bank under this
Agreement, the Revolving Notes and the other Credit Documents. On or prior to
the Transfer Effective Date determined pursuant to such Commitment Transfer
Supplement, the Borrower, at its own expense, shall execute and deliver to the
Administrative Agent in exchange for the surrendered Revolving Notes, new
Revolving Notes to the order of such Purchasing Bank in an amount equal to the
Revolving Commitment assumed by it pursuant to such Commitment Transfer
Supplement and, if the transferor Bank has retained a Revolving Commitment
hereunder, new Revolving Notes to the order of the transferor Bank in an amount
equal to the Revolving Commitment retained by it hereunder. Such new Revolving
Notes shall be dated the Closing Date and shall otherwise be in the form of the
Revolving Notes replaced thereby. The Revolving Notes surrendered by the
transferor Bank shall be returned by the Administrative Agent to the Borrower
marked "cancelled".
<PAGE> 95
(d) The Administrative Agent shall maintain at its address referred
to in Section 11.1 a copy of each Commitment Transfer Supplement and each Money
Market Loan Assignment delivered to it and a register (the "Register") for the
recordation of (a) the names and addresses of the Banks and the Revolving
Commitment of, and principal amount of the Loans owing to and the Participating
Interest of, each Bank from time to time and (b) with respect to each Money
Market Loan Assignment delivered to the Administrative Agent, the name and
address of each Money Market Loan Assignee and the principal amount of each
Money Market Loan owing to such Money Market Loan Assignee. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Administrative Agent and the Banks may treat each Person whose
name is recorded in the Register as the owner of the Loan or Participating
Interests recorded therein for all purposes of this Agreement and the other
Credit Documents. The Register shall be available for inspection by the
Borrower or any Bank or Money Market Loan Assignee at any reasonable time and
from time to time upon reasonable prior notice.
(e) Upon its receipt of a Commitment Transfer Supplement executed by
a transferor Bank and Purchasing Bank (and, in the case of a Purchasing Bank
that is not then a Bank or an affiliate thereof, by the Borrower) together with
payment to the Administrative Agent of a registration and processing fee of
$3,500 for each such transfer, the Administrative Agent shall (i) promptly
accept such Commitment Transfer Supplement and (ii) on the Transfer Effective
Date determined pursuant thereto record the information contained therein in the
Register and give notice of such acceptance and recordation to the Banks and the
Borrower.
Upon its receipt of a Money Market Loan Assignment executed by a transferor Bank
and a Money Market Loan Assignee, together with payment to the Administrative
Agent of a registration and processing fee of $3,500, the Administrative Agent
promptly shall (i) accept such Money Market Loan Assignment, (ii) record the
information contained therein in the Register and (iii) give notice of such
acceptance and recordation to the transferor Bank, the Money Market Loan
Assignee and the Borrower.
(f) The Borrower authorizes each Bank to disclose to any Participant,
Purchasing Bank or Money Market Loan Assignee (each, a "Transferee") and any
prospective Transferee any and all financial and other information in such
Bank's possession concerning the Borrower and its affiliates which has been
delivered to such Bank by or on behalf of the Borrower pursuant to this
Agreement or which had been delivered to such Bank by or on behalf of the
Borrower in connection with such Bank's credit evaluation of the Borrower and
its affiliates prior to becoming a party to this Agreement.
(g) If, pursuant to this Section, any interest in this Agreement or
any Note or the other Credit Documents is transferred to any Transferee which is
not a United States
<PAGE> 96
Person, the transferor Bank shall cause such Transferee, concurrently with the
effectiveness of such transfer, (i) to represent to the transferor Bank (for the
benefit of the transferor Bank, the Administrative Agent and the Borrower) that
under applicable law and treaties no taxes will be required to be withheld by
the Administrative Agent, the Borrower or the transferor Bank with respect to
any payments to be made to such Transferee in respect of the Loans, (ii) to
furnish to the transferor Bank (and, in the case of any Purchasing Bank
registered in the Register, the Administrative Agent and the Borrower) either
U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form
1001 (wherein such Transferee claims entitlement to complete exemption from U.S.
federal withholding tax on all interest payments hereunder) and (iii) to agree
(for the benefit of the transferor Bank, the Administrative Agent and the
Borrower) to provide the transferor Bank (and, in the case of any Purchasing
Bank registered in the Register, the Administrative Agent and the Borrower) a
new Form 4224 or Form 1001 upon the expiration or obsolescence of any previously
delivered form and comparable statements in accordance with applicable U.S. laws
and regulations and amendments duly executed and completed by such Transferee,
and to comply from time to time with all applicable U.S. laws and regulations
with regard to such withholding tax exemption.
(h) Nothing herein shall prohibit any Bank from pledging or assigning
any Note to any Federal Reserve Bank in accordance with applicable law.
(i) If the Euro-Dollar Reference Bank assigns its Notes to an
unaffiliated institution, the Administrative Agent shall, in consultation with
the Borrower and with the consent of the Required Banks, appoint another Bank to
act as the Euro-Dollar Reference Bank hereunder.
SECTION 11.6B. Transfers of Money Market Loans. (a) Any Bank, in
the ordinary course of its commercial banking business and in accordance with
applicable law, at any time may assign to one or more banks or other entities
("Money Market Loan Assignees") any Money Market Loan owing to such Bank and any
Individual Money Market Loan Note held by such Bank evidencing such Money Market
Loan, pursuant to a Money Market Loan Assignment executed by the transferor Bank
and the Money Market Loan Assignee.
(b) Upon such execution, from and after the date of such Money Market
Loan Assignment, the Money Market Loan Assignee shall be deemed, to the extent
of the assignment provided for in such Money Market Loan Assignment and subject
to the provisions of Sections 11.6B(c) and 11.6B(d) to have the same rights and
benefits of payment and enforcement with respect to the principal of and
interest on such Money Market Loan and Individual Money Market Loan Note and the
same rights of setoff and obligation to
<PAGE> 97
share pursuant to Section 11.4 as it would have had if it were a Bank hereunder.
(c) Unless such Money Market Loan Assignment shall otherwise specify
and a copy of such Money Market Loan Assignment shall have been delivered to the
Administrative Agent for its acceptance and recording in the Register in
accordance with Section 11.6A(d), the assignor under the Money Market Loan
Assignment shall act as collection agent for the Money Market Loan Assignee
thereunder, and the Administrative Agent shall pay all amounts received from the
Borrower which are allocable to the assigned Money Market Loan or Individual
Money Market Loan Note directly to such assignor without any liability to such
Money Market Loan Assignee.
(d) A Money Market Loan Assignee under a Money Market Loan Assignment
shall not, by virtue of such Money Market Loan Assignment, become a party to
this Agreement or have any rights to consent to or refrain from consenting to
any amendment, waiver or other modification of any provision of this Agreement
or any related document; provided that (1) the assignor under such Money Market
Loan Assignment and such Money Market Loan Assignee may, in their discretion,
agree between themselves upon the manner in which such assignor will exercise
its rights under this Agreement and any related document, and (2) if a copy of
such Money Market Loan Assignment shall have been delivered to the
Administrative Agent for its acceptance and recording in the Register in
accordance with Section 11.6A(d), neither the principal amount of, the interest
rate on, nor the maturity date of any Money Market Loan or Individual Money
Market Loan Note assigned to the Money Market Loan Assignee thereunder will be
modified without the written consent of such Money Market Loan Assignee.
(e) If a Money Market Loan Assignee has caused a Money Market Loan
Assignment to be recorded in the Register in accordance with Section 11.6A(d),
such Money Market Loan Assignee may thereafter, in the ordinary course if its
business and in accordance with applicable law, assign such Individual Money
Market Loan Note to any Bank, to any affiliate or subsidiary of such Money
Market Loan Assignee or to any other financial institution that has total assets
in excess of $1,000,000,000 and that in the ordinary course of its business
extends credit of the type evidenced by such Individual Money Market Loan Note,
and the foregoing provisions of this subsection shall apply, mutatis mutandis,
to any such assignment by a Money Market Loan Assignee. Except in accordance
with the preceding sentence, Money Market Loans and Individual Money Market Loan
Notes may not be further assigned by a Money Market Loan Assignee, subject to
any legal or regulatory requirement that the Money Market Loan Assignee's assets
must remain under its control.
SECTION 11.7. Collateral. Each of the Banks represents to the
Administrative Agent and each of the other Banks that it in good faith is not
relying upon any "margin
<PAGE> 98
stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 11.8. New York Law. THIS AGREEMENT AND EACH NOTE SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED THEREIN.
SECTION 11.9. Counterparts; Integration; Effectiveness. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement, the other Credit Documents and the Fee
Letter constitute the entire agreement and understanding among the parties
hereto and supersedes any and all prior agreements and understandings, oral or
written, relating to the subject matter hereof. This Agreement shall become
effective when the Administrative Agent shall have received counterparts hereof
signed by all of the parties hereto.
SECTION 11.10. Indemnity. The Borrower agrees to indemnify and hold
harmless the Administrative Agent, the Collateral Agent and the Banks and their
directors, officers, Affiliates and agents (each, an "Indemnified Party") from
and against all costs, expenses (including fees and disbursements of counsel,
including without limitation, the allocated costs of in-house counsel) and
liabilities arising out of or relating to any investigation, litigation or other
proceedings (regardless of whether an Indemnified Party is a party thereto)
which relate to the Loans, any Letter of Credit, the use of the proceeds of the
Loans by the Borrower, the use of the Letters of Credit, or the Collateral
including, without limitation, the financing and other transactions contemplated
hereby, or any transactions connected with any of the foregoing, but excluding
any such losses, liabilities, claims, damages or expenses incurred by reason of
(i) the gross negligence or willful misconduct of the Indemnified Party, or (ii)
claims of one Bank against another not involving acts or omissions of the
Borrower. This indemnity shall survive the termination of this Agreement and
payment of the Loans.
SECTION 11.11. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. THE
BORROWER, THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE LETTER OF CREDIT
BANK AND EACH BANK HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION
WITH, OR ARISING OUT OF THE CREDIT DOCUMENTS AND THE COLLATERAL, OR THE
VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY
OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN THE BORROWER, ON THE ONE HAND,
AND THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT AND/OR ANY ONE OR MORE OF THE
BANKS, ON THE OTHER HAND. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND, TO THE
EXTENT PERMITTED BY APPLICABLE LAW,
<PAGE> 99
OF ANY FEDERAL COURT LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY ONE OR MORE OF THE CREDIT
DOCUMENTS OR ANY DOCUMENT OR INSTRUMENT DELIVERED PURSUANT TO THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENT OR THE COLLATERAL. THE BORROWER HEREBY WAIVES THE
DEFENSES OF FORUM NON CONVENIENS AND IMPROPER VENUE.
SECTION 11.12. Survival of Obligations Under Fee Letter.
Notwithstanding anything herein or in any other agreement to the contrary, the
execution and delivery of this Agreement shall not be deemed to impair or
otherwise affect any obligations of any party thereto under the Fee Letter
except to the extent that such obligations are satisfied by this Agreement and
the other Credit Documents.
SECTION 11.13. Invalidity. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation, it
shall be deemed modified to conform to the minimum requirements of such law or
regulation or, if for any reason it is not deemed so modified, it shall be
ineffective and invalid only to the extent of such prohibition or invalidity
without the remainder thereof or any of the remaining provisions of this
Agreement being prohibited or invalid.
SECTION 11.14. Substitution of Banks. In the event that (i) the
Borrower shall at any time be required under Section 5.3 to withhold any Charges
in respect of any amount payable to any Bank under this Agreement or under any
other Credit Document, (ii) the Borrower shall be required to pay any amounts to
any Bank (but not the other Banks) pursuant to Section 5.4 or 5.9 or (iii) the
obligation of any Bank (but not the other Banks) to make Euro-Dollar Loans shall
be suspended pursuant to Section 5.8, then the Borrower may substitute another
bank or trust company acceptable to the Required Banks to assume the Revolving
Commitments and/or the Loans of such Bank and to purchase the Notes and other
obligations owing by the Borrower to such Bank under the Credit Documents,
without recourse to or warranty by, or expense to, such Bank for a purchase
price equal to the outstanding principal/face amount of the Bank Obligations
payable to such Bank plus any accrued but unpaid interest on the Bank
Obligations and accrued but unpaid fees and other amounts in respect of that
Bank's Revolving Commitment and Loans. Upon such purchase such Bank shall no
longer be a party hereto or have any rights or benefits hereunder (except for
rights or benefits that such Bank would retain hereunder and under the other
Credit Documents upon payment in full of all of the Bank Obligations) and,
subject to Section 11.6 hereof, the replacement bank shall succeed to the rights
and benefits of such Bank hereunder. The Administrative Agent and the Banks
shall cooperate with the Borrower to amend the Credit Documents to reflect such
substitution.
<PAGE> 100
SECTION 11.15. Consent to Inter-Facility Agreement. Each of the
Banks hereby authorizes the Administrative Agent and the Collateral Agent to
execute and deliver the Inter-Facility Agreement and hereby agrees to be bound
by the terms thereof.
<PAGE> 101
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
PAYLESS CASHWAYS, INC.
By: s/Stephen A. Lightstone
-------------------------------
Sr. Vice President-Finance
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, as Administrative
Agent and Collateral Agent
By: s/David McGowan
-------------------------------
Title: Authorized Signatory
CIBC INC.
By: s/David McGowan
-------------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Co-Agent and Bank
By: s/G. Burton Queen
-------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA,
as Co-Agent and Bank
By: s/F.C.H. Ashby
-------------------------------
Title: Sr. Mgr. Loan Operations
NATIONSBANK OF TEXAS, N.A.,
as Co-Agent and Bank
By: s/Perry B. Stephenson
-------------------------------
Title: Sr. Vice President
<PAGE> 102
BANK OF MONTREAL
By: s/Jonathan D. Hook
-------------------------------
Title: Director
THE BANK OF NEW YORK
By: s/Bruce C. Miller
-------------------------------
Title: Vice President
BOATMEN'S FIRST NATIONAL
BANK OF KANSAS CITY
By: s/Thomas J. Butkus
-------------------------------
Title: Vice President
DAI-ICHI KANGYO BANK
LTD., CHICAGO BRANCH
By: s/Masami Tsuboi
-------------------------------
Title: Vice President
FIRST BANK NATIONAL
ASSOCIATION
By: s/Merri B. Bernhardson
-------------------------------
Title: Vice President
THE INDUSTRIAL BANK OF
JAPAN, LTD.
By: s/Hiroaki Nakamura
-------------------------------
Title: Joint General Manager
NATIONAL CITY BANK INDIANA
By: s/Michael J. Stewart
-------------------------------
Title: Vice President
<PAGE> 103
THE SUMITOMO BANK, LIMITED
By: s/Katsuyasu Iwasawa
-------------------------------
Title: Joint General Manager
UNION BANK
By: s/Richard A. Sutter
-------------------------------
Title: Vice President
<PAGE> 104
$420,000,000
CREDIT AGREEMENT
Dated as of
November 18, 1994
among
PAYLESS CASHWAYS, INC.,
THE BANKS LISTED HEREIN,
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY,
as ADMINISTRATIVE AGENT AND COLLATERAL AGENT,
THE BANK OF NOVA SCOTIA,
NATIONSBANK OF TEXAS, N.A., and
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as CO-AGENTS
<PAGE> i
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
SECTION 1. DEFINITIONS
<S> <C> <C>
SECTION 1.1. Definitions ................................................ 1
SECTION 1.2. Other Definitional Provisions .............................. 23
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
SECTION 2.1. Commitments to Lend ........................................ 24
SECTION 2.2. Method of Borrowing ........................................ 25
SECTION 2.3. Revolving Notes 26
SECTION 2.4. Interest Rates ............................................ 27
SECTION 2.5. Commitment Fees ............................................ 28
SECTION 2.6. Optional Termination or Reduction of
Commitments ......................................................... 28
SECTION 2.7. Mandatory Termination or Reduction of
Commitments and Mandatory Prepayments ............................... 28
SECTION 2.8. Optional Prepayments ....................................... 30
SECTION 2.9. Conversion and Continuation Options ........................ 31
SECTION 2.10. Minimum Amount and Maximum Number of
Euro-Dollar Borrowings .............................................. 32
SECTION 3. LETTERS OF CREDIT
SECTION 3.1. L/C Commitment ............................................. 32
SECTION 3.2. Procedure for Issuance of Letters of Credit ................ 33
SECTION 3.3. Fees, and Other Charges .................................... 34
SECTION 3.4. L/C Participation .......................................... 34
SECTION 3.5. Reimbursement Obligation of the Borrower ................... 35
SECTION 3.6. Obligations Absolute ....................................... 36
SECTION 3.7. Letter of Credit Payments .................................. 36
SECTION 3.8. Application ................................................ 37
SECTION 3.9. Indemnification ............................................ 37
SECTION 4. MONEY MARKET LOANS
SECTION 4.1. The Money Market Loans ..................................... 37
SECTION 4.2. Procedure for Money Market Loan Borrowing .................. 37
SECTION 4.3. Money Market Loan Payments ................................. 41
SECTION 4.4. Money Market Loan Notes .................................... 41
SECTION 5. GENERAL CREDIT PROVISIONS
SECTION 5.1. General Provisions as to Payments .......................... 42
<FN>
* The Table of Contents is not a part of this Agreement.
<PAGE> ii
SECTION 5.2. Computation of Interest, Commissions and Fees .............. 43
SECTION 5.3. Indemnification for Charges ................................ 43
SECTION 5.4. Capital Adequacy ........................................... 45
SECTION 5.5. Funding Losses ............................................. 46
SECTION 5.6. Right of Set-Off ........................................... 47
SECTION 5.7. Basis for Determining Interest Rate
Inadequate or Unfair ................................................ 47
SECTION 5.8. Illegality ................................................. 48
SECTION 5.9. Increased Cost and Reduced Return .......................... 48
SECTION 5.10. CIBC Alternate Base Rate Loans
Substituted for Affected Euro-Dollar Loans .......................... 50
SECTION 5.11. Fees ....................................................... 50
SECTION 6. CONDITIONS PRECEDENT
SECTION 6.1. All Loans and Letters of Credit ............................ 50
SECTION 6.2. Conditions to Effectiveness of this
Agreement, Initial Loans and Letters of Credit ...................... 51
SECTION 7. REPRESENTATIONS AND WARRANTIES
SECTION 7.1. Corporate Existence and Power .............................. 54
SECTION 7.2. Corporate Power and Authority .............................. 54
SECTION 7.3. No Violation ............................................... 55
SECTION 7.4. Margin Regulations ......................................... 55
SECTION 7.5. Approvals .................................................. 56
SECTION 7.6. Investment Company Act; etc. .............................. 56
SECTION 7.7. True and Complete Disclosure ............................... 56
SECTION 7.8. Subsidiaries ............................................... 57
SECTION 7.9. Financial Condition; Financial
Statements; Projections ............................................. 57
SECTION 7.10. Tax Returns and Payments .................................. 59
SECTION 7.11. Litigation; Adverse Facts ................................. 59
SECTION 7.12. Compliance with Laws and Charter Documents ................ 59
SECTION 7.13. Certain Fees .............................................. 60
SECTION 7.14. ERISA ..................................................... 60
SECTION 7.15. Good Title to Properties .................................. 61
SECTION 7.16. Trademarks, Patents, etc. 61
SECTION 7.17. Labor Matters ............................................. 61
SECTION 7.18. Environmental Matters ..................................... 61
SECTION 7.19. No Default ................................................ 63
SECTION 8. COVENANTS
SECTION 8.1. Information ................................................ 63
SECTION 8.2. Payment of Obligations ..................................... 66
SECTION 8.3. Maintenance of Property; Insurance ......................... 66
SECTION 8.4. Conduct of Business and Maintenance of Existence ........... 67
SECTION 8.5. Compliance with Laws ....................................... 67
<PAGE> iii
SECTION 8.6. Inspection of Property, Books and Records .................. 68
SECTION 8.7. Restricted Payments ........................................ 68
SECTION 8.8. Debt ....................................................... 69
SECTION 8.9. Investments ................................................ 70
SECTION 8.10. Negative Pledge ............................................ 71
SECTION 8.11. Consolidations, Mergers and Sales of Assets ................ 73
SECTION 8.12. Capital Expenditures and Leases ............................ 74
SECTION 8.13. No Negative Pledges ........................................ 76
SECTION 8.14. Termination of Plans ....................................... 76
SECTION 8.15. Transactions with Affiliates ............................... 76
SECTION 8.16. Consolidated Net Worth ..................................... 77
SECTION 8.17. Interest Coverage .......................................... 77
SECTION 8.18. Customer Charge Sales ...................................... 78
SECTION 8.19. Accounting Changes ......................................... 78
SECTION 8.20. Amendment and Modification of Certain Documents ............ 78
SECTION 8.21. Sale/Lease-Backs ........................................... 79
SECTION 8.22. Environmental Matters ...................................... 79
SECTION 8.23. Business Segments .......................................... 81
SECTION 8.24. Subsidiary Guarantee ....................................... 81
SECTION 8.25. Further Assurances ......................................... 81
SECTION 8.26. Debt to Capitalization Ratio ............................... 81
SECTION 8.27. Independence of Covenants .................................. 82
SECTION 9. DEFAULTS
SECTION 9.1. Events of Default .......................................... 82
SECTION 9.2. Application Of Proceeds .................................... 86
SECTION 10. THE ADMINISTRATIVE AGENT AND
THE COLLATERAL AGENT
SECTION 10.1 Appointment and Authorization .............................. 87
SECTION 10.2 Administrative Agent, Collateral Agent
and Affiliates ...................................................... 87
SECTION 10.3 Action by Agents ........................................... 87
SECTION 10.4 Consultation with Experts .................................. 87
SECTION 10.5 Liability of Agents ........................................ 88
SECTION 10.6 Indemnification ............................................ 88
SECTION 10.7 Credit Decision ............................................ 88
SECTION 10.8 Successor Agents ........................................... 89
SECTION 11. MISCELLANEOUS
SECTION 11.1. Notices .................................................... 90
SECTION 11.2. No Waivers ................................................. 90
SECTION 11.3. Expenses; Documentary Taxes ................................ 90
SECTION 11.4. Sharing of Set-Offs ........................................ 91
SECTION 11.5. Amendments and Waivers ..................................... 91
SECTION 11.6A Successors and Assigns; Participations;
Purchasing Banks .................................................... 92
<PAGE> iv
SECTION 11.6B. Transfers of Money Market Loans ........................... 96
SECTION 11.7. Collateral ................................................ 97
SECTION 11.8. New York Law .............................................. 97
SECTION 11.9. Counterparts; Integration; Effectiveness .................. 97
SECTION 11.10. Indemnity ................................................. 98
SECTION 11.11. Waiver of Jury Trial; Consent to Jurisdiction ............. 98
SECTION 11.12. Survival of Obligations Under Fee Letter .................. 98
SECTION 11.13. Invalidity ................................................ 98
SECTION 11.14. Substitution of Banks ..................................... 99
SECTION 11.15. Consent to Inter-Facility Agreement ....................... 99
</TABLE>
<PAGE> vi
<TABLE>
<S> <C>
SCHEDULES
Schedule I Commitments, Lending Offices, Notices
Schedule II Existing Standby Letters of Credit
Schedule 7.8 Subsidiaries
Schedule 7.18 Environmental Matters
Schedule 8.8 Debt
Schedule 8.9 Investments
Schedule 8.10 Liens
Schedule 8.11 Certain Assets and Leased Property
EXHIBITS
Exhibit A Revolving Note
Exhibit B-1 Grid Money Market Loan Note
Exhibit B-2 Individual Money Market Loan Note
Exhibit C Note Pledge Agreement
Exhibit D Security Agreement
Exhibit E Subsidiary Guarantee
Exhibit F Subsidiary Security Agreement
Exhibit G Stock Pledge Agreement
Exhibit H Notice of Borrowing
Exhibit I Letter of Credit Application
Exhibit J-1 Opinion of Blackwell, Sanders, Matheny,
Weary & Lombardi
Exhibit J-2 Opinion of Wachtel, Lipton, Rosen & Katz
Exhibit J-3 Opinion of Amster, Rothstein & Ebenstein
Exhibit K Inter-Facility Agreement
Exhibit L-1 Borrower Closing Certificate
Exhibit L-2 Subsidiary Guarantor Closing Certificate
Exhibit M-1 Money Market Loan Confirmation
Exhibit M-2 Money Market Loan Offer
Exhibit M-3 Money Market Loan Request
Exhibit N Commitment Transfer Supplement
Exhibit O Notice of Continuation/Conversion
Exhibit P Compliance Certificate
</TABLE>
<PAGE> 1
Exhibit 4.5
BORROWER SECURITY AGREEMENT
BORROWER SECURITY AGREEMENT, dated as of November 18, 1994, between
PAYLESS CASHWAYS, INC., an Iowa corporation (the "Borrower"), and CANADIAN
IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY ("CIBC"), as Collateral Agent (in
such capacity, together with any successor collateral agent, the "Collateral
Agent") made for the benefit of the Collateral Agent, CIBC, as Administrative
Agent (in such capacity, the "Administrative Agent"), The Bank of Nova Scotia,
NationsBank of Texas, N.A. and Bank of America National Trust and Savings
Association, as Co-Agents (in such capacity, the "Co-Agents"), the banks and
other financial institutions (the "Banks") from time to time parties to the
Credit Agreement, dated as of November 18, 1994, among the Borrower, the
Administrative Agent, the Collateral Agent, the Co-Agents and the Banks (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement") and Commerce Bank, N.A. and any other bank which shall hereafter
issue commercial letters of credit pursuant to the Merchandise Letter of Credit
Facility (as hereinafter defined) (the "Merchandise Letter of Credit Bank").
The Collateral Agent, the Administrative Agent, the Co-Agents, the Banks and the
Merchandise Letter of Credit Bank are collectively referred to herein as the
"Secured Parties."
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, the Banks have severally
agreed to make extensions of credit to the Borrower upon the terms and subject
to the conditions set forth therein;
WHEREAS, the Borrower and the Merchandise Letter of Credit Bank are
parties to the Letter of Credit Issuance and Reimbursement Agreement dated as of
November 18, 1994, as amended (as such agreement may be amended, supplemented,
otherwise modified or replaced from time to time with the consent of the
Required Banks, the "Merchandise Letter of Credit Facility"), pursuant to which
the Merchandise Letter of Credit Bank makes available to the Borrower up to
$15,000,000 of commercial letters of credit at any one time outstanding (the
"Merchandise Letters of Credit");
<PAGE> 2
WHEREAS, it is a condition precedent to the effectiveness of the
Credit Agreement that the Borrower shall have executed and delivered to the
Collateral Agent this Security Agreement for the benefit of the Secured Parties;
NOW, THEREFORE, in consideration of the premises and to induce the
Collateral Agent, the Administrative Agent, the Co-Agents and the Banks to enter
into the Credit Agreement and to induce the Banks to make their respective loans
and to issue and participate in the letters of credit (the "Bank Letters of
Credit") provided for under the Credit Agreement and to induce the Merchandise
Letter of Credit Bank to continue to issue the Merchandise Letters of Credit
provided for under the Merchandise Letter of Credit Facility, and for other good
and valuable consideration receipt of which is hereby acknowledged, the Borrower
hereby agrees with the Collateral Agent, for the benefit of the Secured Parties
as follows:
1. Defined Terms. a. Unless otherwise defined herein, terms which
are defined in the Credit Agreement and used herein are so used as so defined;
the following terms which are defined in the Uniform Commercial Code in effect
in the State of New York on the date hereof are used herein as so defined:
Accounts, Chattel Paper, Documents, Equipment, Farm Products, General
Intangibles, Instruments and Proceeds; and the following terms shall have the
following meanings:
"Code" means the Uniform Commercial Code as from time to time in
effect in the State of New York.
"Collateral" shall have the meaning assigned to it in Section 2 of
this Security Agreement.
"Contractor Receivables" means those certain commercial credit
accounts sold by the Borrower and its Subsidiaries (including any
documents, instruments, chattel paper or intangibles evidencing any such
transferred receivable or the transaction giving rise thereto) (i) pursuant
to the terms of the GE Credit Program Documents or (ii) to any other Person
pursuant to any similar contractual arrangement solely to the extent such
an arrangement is permitted by Section 8.18 of the Credit Agreement.
"Contracts" means all contracts of the Borrower listed on Schedule I
and any interest rate swap, cap or other interest rate lending arrangement,
as the same may from time to time be amended, supplemented or otherwise
modified, including, without limitation, (a) all rights of the Borrower to
receive moneys due and to become due to it thereunder or in connection
therewith, (b) all rights of the Borrower to damages arising out of, or
for, breach or default in respect thereof and
<PAGE> 3
(c) all rights of the Borrower to perform and to exercise all remedies
thereunder.
"GECC Receivables" means receivables (including any documents,
instruments, chattel paper or intangibles evidencing any such transferred
receivable or the transaction giving rise thereto) (i) payable to the
Borrower and its Subsidiaries by Monogram Credit Card Bank of Georgia
pursuant to the terms of the GE Credit Program Documents arising out of
private label credit card sales of merchandise or services made by the
Borrower and its Subsidiaries or (ii) payable to or purchased by any other
Person pursuant to the terms of any similar contractual arrangement solely
to the extent such an arrangement is permitted by Section 8.18 of the
Credit Agreement arising out of private label credit card sales of
merchandise or services made by the Borrower and its Subsidiaries.
"Liened Trademarks" has the meaning set forth in Section 5(q) hereof.
"Obligations" means the unpaid principal amount of, and interest on
(including, without limitation, interest accruing after the maturity of the
Loans and interest accruing after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Notes and all
other obligations and liabilities of the Borrower to the Secured Parties,
whether direct or indirect, absolute or contingent, due or to become due,
or now existing or hereafter incurred, which may arise under, out of, or in
connection with, the Credit Agreement, the Notes, the Bank Letters of
Credit, the Merchandise Letter of Credit Facility, the Merchandise Letters
of Credit, this Security Agreement, the other Credit Documents and any
other document made, delivered or given in connection therewith or
herewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without
limitation, all fees and disbursements of counsel to any of the Secured
Parties that are required to be paid by the Borrower pursuant to the terms
of the Credit Agreement, the Merchandise Letter of Credit Facility or the
other Credit Documents) or otherwise.
"Security Agreement" means this Security Agreement, as amended,
supplemented or otherwise modified from time to time.
<PAGE> 4
"Trademarks" means (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers owned by the
Borrower, and the goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States Patent
and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country or any political subdivision
thereof, or otherwise and (b) all renewals thereof.
"Trademark License" means any agreement, written or oral, providing
for the grant by or to the Borrower of any right to use any Trademark.
"Vehicles" means all cars, trucks, trailers, construction and earth
moving equipment and other vehicles covered by a certificate of title law
of any state and, in any event, shall include, without limitation, the
vehicles set forth on that certain Car and Light Truck Inventory list and
that certain Delivery Truck Fleet Inventory list delivered by the Borrower
to the Collateral Agent on the Closing Date (collectively, the "Vehicle
Lists") and all tires and other appurtenances to any of the foregoing.
b. The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Security Agreement shall refer to this Security
Agreement as a whole and not to any particular provision of this Agreement, and
section and paragraph references are to this Security Agreement unless otherwise
specified.
c. The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Obligations, the Borrower hereby grants to
the Collateral Agent for the ratable benefit of the Secured Parties a security
interest in all of the following property now owned or at any time hereafter
acquired by the Borrower or in which the Borrower now has or at any time in the
future may acquire any right, title or interest (collectively, the
"Collateral"):
(i) all Accounts (it being agreed that no Contractor Receivable, GECC
Receivable or receivable the obligor on which is a Governmental
Authority shall constitute
<PAGE> 5
Collateral for purposes of this Security Agreement);
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment (including, without limitation, mobile goods);
(vi) all General Intangibles (including, without limitation, all
intercompany obligations owing to the Borrower by its
Subsidiaries);
(vii) all Instruments;
(viii) all Trademarks listed on Schedule II;
(ix) all Trademark Licenses listed on Schedule II;
(x) all Vehicles; and
(xi) to the extent not otherwise included, all Proceeds and products of
any and all of the foregoing;
but excluding any collateral subject to the liens in existence on the date
hereof granted under the Prudential Real Estate Financing.
3. Rights of Secured Parties; Limitations on Secured Parties'
Obligations.
(a) Borrower Remains Liable under Accounts and Contracts. Anything
herein to the contrary notwithstanding, the Borrower shall remain liable under
each of the Accounts and Contracts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise to each such Account and in
accordance with and pursuant to the terms and provisions of each such Contract.
None of the Secured Parties shall have any obligation or liability under any
Account (or any agreement giving rise thereto) or under any Contract by reason
of or arising out of this Security Agreement or the receipt by such Secured
Party of any payment relating to such Account or Contract pursuant hereto, nor
shall any Secured Party be obligated in any manner to perform any of the
obligations of the Borrower under or pursuant to any Account (or any agreement
giving rise thereto) or under or pursuant to any Contract, to make any payment,
to make any inquiry as to the nature or the sufficiency of any payment received
by it or as to the sufficiency of any performance by any party under any Account
(or any agreement giving rise thereto) or
<PAGE> 6
under any Contract, to present or file any claim, to take any action to enforce
any performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
(b) Notice to Account Debtors and Contracting Parties. Upon the
request of the Collateral Agent at any time after the occurrence and during the
continuance of an Event of Default, the Borrower shall notify account debtors on
the Accounts and parties to the Contracts that the Accounts and the Contracts
have been assigned to the Collateral Agent for the benefit of the Secured
Parties, and that payments in respect thereof shall be made directly to the
Collateral Agent. The Collateral Agent may in its own name or in the name of
others communicate with account debtors on the Accounts and parties to the
Contracts to verify with them to its satisfaction the existence, amount and
terms of any Accounts or Contracts.
(c) Analysis of Accounts. The Collateral Agent shall have the right
to make test verifications of the Accounts in any manner and through any medium
that it reasonably considers advisable, and the Borrower shall furnish all such
assistance and information as the Collateral Agent may reasonably require in
connection therewith. At any time and from time to time, upon the Collateral
Agent's request and at the expense of the Borrower, the Borrower shall cause
independent public accountants or others satisfactory to the Collateral Agent to
furnish to the Collateral Agent reports showing reconciliations, aging and test
verifications of, and trial balances for, the Accounts.
(d) Collections on Accounts. The Collateral Agent hereby authorizes
the Borrower to collect the Accounts and the Collateral Agent may curtail or
terminate said authority at any time after the occurrence and during the
continuance of an Event of Default. If required by the Collateral Agent at any
time after the occurrence and during the continuance of an Event of Default, any
payments of Accounts, when collected by the Borrower, shall be forthwith (and,
in any event, within two Domestic Business Days) deposited by the Borrower in
the exact form received, duly indorsed by the Borrower to the Collateral Agent
if required, in a special collateral account maintained by the Collateral Agent,
subject to withdrawal by the Collateral Agent for the account of the Secured
Parties only, as hereinafter provided, and, until so turned over, shall be held
by the Borrower in trust for the Secured Parties, segregated from other funds of
the Borrower. Each deposit of any such Proceeds shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments
included in the deposit. All Proceeds constituting collections of Accounts
while held by the Collateral Agent (or by the Borrower in trust for the Secured
Parties) shall continue to be collateral security for all of the Obligations and
shall not constitute payment thereof until applied as hereinafter provided. At
such intervals as may be agreed upon by the Borrower and the Collateral Agent,
or, if an
<PAGE> 7
Event of Default shall have occurred and be continuing, at any time at the
Collateral Agent's election, the Collateral Agent shall apply all or any part of
the funds on deposit in said special collateral account on account of the
Obligations in such order as required by Section 9.2 of the Credit Agreement,
and any part of such funds which the Collateral Agent elects not so to apply and
deems not required as collateral security for the Obligations shall be paid over
from time to time by the Collateral Agent to the Borrower or to whomsoever may
be lawfully entitled to receive the same. At the Collateral Agent's request at
any time when an Event of Default shall have occurred and is then continuing,
the Borrower shall deliver to the Collateral Agent all original and other
documents evidencing, and relating to, the agreements and transactions which
gave rise to the Accounts, including, without limitation, all original orders,
invoices and shipping receipts.
4. Representations and Warranties. The Borrower hereby represents
and warrants that:
(a) Title; No Other Liens. Except for the Lien granted to the
Collateral Agent for the benefit of the Secured Parties pursuant to this
Security Agreement and the other Liens permitted to exist on the Collateral
pursuant to the Credit Agreement, the Borrower owns each item of the
Collateral free and clear of any and all Liens or claims of others. The
Borrower has not permitted any security agreement, financing statement or
other public notice with respect to all or any part of the Collateral to be
on file or of record in any public office, except such as may have been
filed in favor of the Collateral Agent, for the benefit of the Secured
Parties, pursuant to this Security Agreement or as may be permitted
pursuant to the Credit Agreement.
(b) Perfected First Priority Liens. Upon the filing in the proper
locations of appropriate UCC financing statements, the Liens granted
pursuant to this Security Agreement constitute perfected Liens on the
Collateral in favor of the Collateral Agent, for the benefit of the Secured
Parties, which are prior to all other Liens on the Collateral (except for
existing Liens on the Collateral to the extent permitted by Section 8.10(i)
of the Credit Agreement and purchase money Liens to the extent permitted by
Section 8.10(vi) of the Credit Agreement) created by the Borrower and in
existence on the date hereof and which are enforceable as such against all
creditors of and purchasers from the Borrower and against any owner or
purchaser of the real property where any of the Equipment is located and
any present or future creditor obtaining a Lien on such real property.
<PAGE> 8
(c) Accounts. Any amount which is at any time represented by the
Borrower to the Banks as owing by each account debtor or by all account
debtors in respect of the Accounts constituting part of the Collateral will
at such time be the correct amount actually owing by such account debtor or
debtors thereunder. No material amount payable to the Borrower under or in
connection with any Account is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Collateral Agent. The Borrower keeps
its records concerning all the Accounts at the locations listed on Schedule
III.
(d) Contracts. No consent of any party (other than the Borrower) to
any Contract is required, or purports to be required, in connection with
the execution, delivery and performance of this Security Agreement. To the
best of the Borrower's knowledge, each Contract is in full force and effect
and constitutes a valid and legally enforceable obligation of the parties
thereto, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditor's rights generally, and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law). No consent or
authorization of, filing with or other act by or in respect of any
Governmental Authority is required in connection with the execution,
delivery, performance, validity or enforceability of any of the Contracts
by the Borrower, or to the best of the Borrower's knowledge, any other
party thereto, other than those which have been duly obtained, made or
performed, are in full force and effect and do not subject the scope of any
such Contract to any material adverse limitation, either specific or
general in nature. Neither the Borrower nor (to the best of the Borrower's
knowledge) any other party to any Contract is in default or is likely to
become in default in the performance or observance of any of the terms
thereof. The Borrower has fully performed all its obligations under each
Contract. The right, title and interest of the Borrower in, to and under
each Contract are not, to the best of the Borrower's knowledge, subject to
any defense, offset, counterclaim or claim which would materially adversely
affect the value of such Contract as Collateral, nor have any of the
foregoing been asserted or alleged against the Borrower as to any Contract.
The Borrower has delivered to the Collateral Agent a complete and correct
copy of each Contract, including all amendments, supplements and other
modifications thereto. No amount payable to the Borrower under or in
connection with any Contract is
<PAGE> 9
evidenced by any Instrument or Chattel Paper which has not been delivered
to the Collateral Agent.
(e) Equipment. As of the date hereof, the Equipment is kept at the
locations listed on Schedule III hereto.
(f) Chief Executive Office. The Borrower's chief executive office
and chief place of business is located at 2300 Main, Kansas City, Missouri.
(g) Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
(h) Trademarks. Schedule II hereto includes all material Trademarks
and Trademark Licenses owned by the Borrower in its own name as of the date
hereof. To the best of the Borrower's knowledge, each such Trademark is
valid, subsisting, unexpired, enforceable and has not been abandoned.
Except as set forth in such Schedule, none of such Trademarks is the
subject of any licensing or franchise agreement. No holding, decision or
judgment has been rendered by any Governmental Authority which would limit,
cancel or question the validity of any such Trademark or the Borrower's
ownership thereof. No action or proceeding is pending (i) seeking to
limit, cancel or question the validity of any such Trademark, or (ii)
which, if adversely determined, would have a material adverse effect on the
value of any such Trademark or the Borrower's ownership thereof.
(i) Vehicles. The Vehicle Lists together constitute a materially
complete and correct list of all Vehicles owned by the Borrower.
(j) Governmental Obligors. On the Effective Date, less than
$2,000,000 of the accounts receivable of the Borrower are owed to the
Borrower by obligors which are Governmental Authorities.
5. Covenants. The Borrower covenants and agrees with the Secured
Parties that, from and after the date of this Security Agreement until the
Obligations are paid in full, the Merchandise Letters of Credit shall have
expired or shall have been cancelled and the Commitments are terminated:
(a.) Further Documentation; Pledge of Instruments and Chattel Paper.
At any time and from time to time, upon the written request of the
Collateral Agent, and at the sole expense of the Borrower, the Borrower
will promptly and duly execute and deliver such further instruments and
documents and take such further action as the Collateral Agent may
reasonably request for the
<PAGE> 10
purpose of obtaining or preserving the full benefits of this Security
Agreement and of the rights and powers herein granted, including, without
limitation, the filing of any financing or continuation statements under
the Uniform Commercial Code in effect in any jurisdiction with respect to
the Liens created hereby. The Borrower also thereby authorizes the
Collateral Agent to file any such financing or continuation statement
without the signature of the Borrower to the extent permitted by applicable
law; provided, the Collateral Agent delivers to the Borrower a copy of each
financing or continuation statement so filed as promptly as possible after
the filing thereof. A carbon, photographic or other reproduction of this
Security Agreement shall be sufficient as a financing statement for filing
in any jurisdiction. If any amount payable under or in connection with any
of the Collateral shall be or become evidenced by any Instrument or Chattel
Paper, such Instrument or Chattel Paper shall be immediately delivered to
the Collateral Agent, duly endorsed in a manner satisfactory to the
Collateral Agent, to be held as Collateral pursuant to this Security
Agreement.
(b) Indemnification. The Borrower agrees to pay, and to save the
Secured Parties harmless from, any and all liabilities, costs and expenses
(including, without limitation, legal fees and expenses) (i) with respect
to, or resulting from, any delay in paying, any and all excise, sales or
other taxes which may be payable or determined to be payable with respect
to any of the Collateral, (ii) with respect to, or resulting from, any
delay in complying with any Requirement of Law applicable to any of the
Collateral or (iii) in connection with any of the transactions contemplated
by this Security Agreement, but excluding any such liabilities, costs and
expenses incurred by reason of the gross negligence or willful misconduct
of the party seeking to be indemnified. In any suit, proceeding or action
brought by any of the Secured Parties under any Account or Contract for any
sum owing thereunder, or to enforce any provisions of any Account or
Contract, the Borrower will save, indemnify and keep such Secured Party
harmless from and against all expense, loss or damage suffered by reason of
any defense, setoff, counterclaim, recoupment or reduction or liability
whatsoever of the account debtor or obligor thereunder, arising out of a
breach by the Borrower of any obligation thereunder or arising out of any
other agreement, indebtedness or liability at any time owing to or in favor
of such account debtor or obligor or its successors from the Borrower, but
excluding any such expense, loss or damage incurred by reason of the gross
<PAGE>11
negligence or willful misconduct of the party seeking to be indemnified.
(c) Maintenance of Records. The Borrower will keep and maintain at
its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments
received and all credits granted with respect to the Accounts. For the
Secured Parties' further security, the Collateral Agent, for the benefit of
the Secured Parties, shall have a security interest in all of the
Borrower's books and records pertaining to the Collateral, and the Borrower
shall make available any such books and records to the Collateral Agent or
to its representatives during normal business hours at the request of the
Collateral Agent.
(d) Right of Inspection. The Secured Parties shall at all times have
full and free access during normal business hours to all the books,
correspondence and records of the Borrower, and the Secured Parties and
their representatives may examine the same, take extracts therefrom and
make photocopies thereof, and the Borrower agrees to render to the Secured
Parties at the Borrower's cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto. The Secured
Parties and their representatives shall at all times also have the right to
enter into and upon any premises where any of the Equipment is located for
the purpose of inspecting the same, observing its use or otherwise
protecting its interests therein.
(e) Compliance with Laws, etc. The Borrower will comply in all
material respects with all Requirements of Law applicable to the Collateral
or any part thereof or to the operation of the Borrower's business except
where the necessity of compliance therewith is contested in good faith by
appropriate proceedings or where the failure to comply with would not have
a Materially Adverse Effect; provided that the Borrower must comply with
any Requirement of Law which the failure to do so would adversely affect
the Secured Parties' rights in the Collateral or the priority of their
Liens on the Collateral.
(f) Compliance with Terms of Contracts, etc. The Borrower will
perform and comply in all material respects with all its obligations under
the Contracts and all its other contractual obligations relating to the
Collateral.
(g) Payment of Obligations. The Borrower will pay promptly when due
all taxes, assessments and
<PAGE> 12
governmental charges or levies imposed upon the Collateral or in respect of
its income or profits therefrom, as well as all claims of any kind
(including, without limitation, claims for labor, materials and supplies)
against or with respect to the Collateral, except that no such charge need
be paid if (i) the Borrower is not required to do so pursuant to the Credit
Agreement and (ii) such proceedings do not involve any material danger of
the sale, forfeiture or loss of any material portion of the Collateral or
any interest therein.
(h) Limitation on Liens on Collateral. The Borrower will not create,
incur or permit to exist, will defend the Collateral against, and will take
such other action as is necessary to remove, any Lien or claim on or to the
Collateral, other than the Liens created hereby and other than as permitted
pursuant to the Credit Agreement, and will defend the right, title and
interest of the Secured Parties in and to any of the Collateral against the
claims and demands of all Persons whomsoever.
(i) Limitations on Dispositions of Collateral. Except as permitted
under the Credit Agreement, the Borrower will not sell, transfer, lease or
otherwise dispose of any of the Collateral.
(j) Limitations on Modifications, Waivers, Extensions of Contracts
and Agreements Giving Rise to Accounts. The Borrower will not (i) amend,
modify, terminate or waive any provision of any Contract or any agreement
giving rise to a material Account in any manner which could reasonably be
expected to materially adversely affect the value of such Contract or
Account as Collateral, (ii) fail to exercise promptly and diligently each
and every material right which it may have under each Contract or material
Account (other than any right of termination) or (iii) fail to deliver to
the Collateral Agent a copy of each material demand, notice or document
received by it relating in any way to any Contract or material Account.
(k) Limitations on Discounts, Compromises, Extensions of Accounts.
Other than in the ordinary course of business, the Borrower will not grant
any extension of the time of payment of any of the Accounts, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partially, any Person liable for the payment thereof, or allow
any credit or discount whatsoever thereon.
(l) Maintenance of Equipment. The Borrower will maintain each item
of Equipment in good operating
<PAGE> 13
condition, ordinary wear and tear and immaterial impairments of value and
damage by the elements excepted, and will provide all maintenance, service
and repairs necessary for such purpose.
(m) Maintenance of Insurance. The Borrower will maintain the
insurance required by Section 8.3 of the Credit Agreement.
(n) Further Identification of Collateral. The Borrower will furnish
to the Collateral Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as the Collateral Agent may reasonably
request, all in reasonable detail.
(o) Notices. The Borrower will advise the Collateral Agent promptly,
in reasonable detail, at the Collateral Agent's address set forth in the
Credit Agreement, (i) of any Lien (other than Liens created hereby or
permitted under the Credit Agreement) on, or claim asserted against, any of
the Collateral and (ii) of the occurrence of any other event which could
reasonably be expected to have a material adverse effect on the aggregate
value of the Collateral or on the Liens created hereunder.
(p) Changes in Locations, Name, etc. The Borrower will not, unless
it shall have given the Collateral Agent at least 30 days prior written
notice thereof (i) change the location of its chief executive office/chief
place of business from that specified in Section 4(f) or remove its books
and records from any location specified in Section 4(c), (ii) permit any of
the Equipment to be kept in jurisdictions other than those listed on
Schedule III hereto or (iii) change its name, identity or corporate
structure to such an extent that any financing statement filed by the
Collateral Agent in connection with this Security Agreement would become
seriously misleading.
(q) Trademarks.
(i) Except with respect to any Trademark that the Borrower shall
reasonably determine is of negligible economic value to it, the Borrower
(either itself or through licensees) will, with respect to any Trademark on
which a Lien has been or shall be created pursuant to this Agreement (a
"Liened Trademark"), (i) continue to use each Liened Trademark on each and
every trademark class of goods applicable to its current line as reflected
in its current catalogs, brochures and price lists in order to maintain
such Liened Trademark in full force free from any claim of abandonment for
<PAGE> 14
non-use, (ii) maintain as in the past the quality of products and services
offered under such Liened Trademark, (iii) employ such Liened Trademark
with the appropriate notice of registration, (iv) not adopt or use any mark
which is confusingly similar or a colorable imitation of such Liened
Trademark unless the Collateral Agent, for the benefit of the Secured
Parties, shall obtain a perfected security interest in such mark pursuant
to this Security Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby
any Liened Trademark may become invalidated.
(ii) The Borrower will notify the Collateral Agent immediately
if it knows, or has reason to know, that any application or registration
relating to any Liened Trademark may become abandoned or dedicated, or of
any adverse determination or development (including, without limitation,
the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office or any court or
tribunal in any country) regarding the Borrower's ownership of any Liened
Trademark or its right to register the same or to keep and maintain the
same.
(iii) Whenever the Borrower, either by itself or through any
agent, employee, licensee or designee, shall file an application for the
registration of any material Trademark with the United States Patent and
Trademark Office or any similar office or agency in any other country or
any political subdivision thereof, the Borrower shall report such filing to
the Collateral Agent within five Domestic Business Days after the last day
of the fiscal quarter in which such filing occurs. Upon request of the
Collateral Agent, the Borrower shall execute and deliver any and all
agreements, instruments, documents, and papers as the Collateral Agent may
request to create a security interest in favor of the Secured Parties in
any such material Trademark and the goodwill and general intangibles of the
Borrower relating thereto or represented thereby, and the Borrower hereby
constitutes the Collateral Agent its attorney-in-fact to execute and file,
in the event of the failure of the Borrower to do so, all such writings for
the foregoing purposes, all acts of such attorney being hereby ratified and
confirmed; such power being coupled with an interest is irrevocable until
the Obligations are paid in full in cash and the Commitments are terminated
and the Merchandise Letters of Credit shall have been cancelled or shall
have expired.
(iv) The Borrower will take all reasonable and necessary steps,
including, without limitation, in
<PAGE> 15
any proceeding before the United States Patent and Trademark Office, or any
similar office or agency in any other country or any political subdivision
thereof, in which the applicable Liened Trademark is used by the Borrower,
to maintain and pursue each application (and to obtain the relevant
registration) and to maintain each registration of the Liened Trademarks,
including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability.
(v) In the event that any Liened Trademark included in the
Collateral is infringed, misappropriated or diluted by a third party, the
Borrower shall promptly notify the Collateral Agent after it learns thereof
and shall, unless the Borrower shall reasonably determine that such Liened
Trademark is of negligible economic value to the Borrower which
determination the Borrower shall promptly report to the Collateral Agent,
promptly sue for infringement, misappropriation or dilution, to seek
injunctive relief where appropriate and to recover any and all damages for
such infringement, misappropriation or dilution, or take such other actions
as the Borrower shall reasonably deem appropriate under the circumstances
to protect such Liened Trademark.
(r) Vehicles. The Borrower will maintain each Vehicle in good
operating condition, ordinary wear and tear and immaterial impairments of value
and damage by the elements excepted, and will provide all maintenance, service
and repairs necessary for such purpose. Promptly after the date hereof, and,
with respect to any Vehicles acquired by the Borrower subsequent to the date
hereof, within 60 days after the date of acquisition thereof, all applications
for certificates of title indicating the Collateral Agent's first priority Lien
on the Vehicle covered by such certificate, and any other necessary
documentation, shall be filed in each office in each jurisdiction which the
Collateral Agent shall deem advisable to perfect its Liens on the Vehicles.
6. Collateral Agent's Appointment as Attorney-in-Fact.
(a) Powers. The Borrower hereby irrevocably constitutes and appoints
the Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Borrower and in the name of
the Borrower or in its own name, from time to time in the Collateral Agent's
discretion, for the purpose of carrying out the terms of this Security Agreement
where the Collateral Agent, in its sole discretion, determines that to do so is
necessary or appropriate to protect its interest in all or any portion of the
Collateral or the value thereof, to take any and all appropriate action and to
execute any and all documents and instruments which the
<PAGE> 16
Collateral Agent, in its sole discretion determines, may be necessary or
desirable to protect its interest in all or any portion of the Collateral or the
value thereof, and, without limiting the generality of the foregoing, the
Borrower hereby gives the Collateral Agent the power and right, on behalf of the
Borrower, without notice to or assent by the Borrower, to do the following:
(i) in the case of any Account, at any time when the authority of the
Borrower to collect the Accounts has been curtailed or terminated pursuant
to the first sentence of Section 3(d) hereof, or in the case of any other
Collateral, at any time when any Event of Default shall have occurred and
is continuing, in the name of the Borrower or its own name, or otherwise,
to take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Account, Instrument, General Intangible or Contract or with respect to any
other Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by
the Collateral Agent for the purpose of collecting any and all such moneys
due under any Account, Instrument, General Intangible or Contract or with
respect to any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral (except where the Borrower is not
required to discharge such tax or Lien pursuant to the provisions of this
Security Agreement or the Credit Agreement), to effect any repairs or any
insurance called for by the terms of this Security Agreement or the Credit
Agreement and to pay all or any part of the premiums therefor and the costs
thereof; and
(iii) upon the occurrence and during the continuance of any Event of
Default, (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Collateral Agent or as the Collateral Agent
shall direct; (B) to ask or demand for, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to become
due at any time in respect of or arising out of any Collateral; (C) to sign
and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (D) to commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect the
Collateral or
<PAGE> 17
any thereof and to enforce any other right in respect of any Collateral;
(E) to defend any suit, action or proceeding brought against the Borrower
with respect to any Collateral; (F) to settle, compromise or adjust any
suit, action or proceeding described in clause (E) above and, in connection
therewith, to give such discharges or releases as the Collateral Agent may
deem appropriate; (G) to assign any Trademark (along with the goodwill of
the business to which any such Trademark pertains), throughout the world
for such term or terms, on such conditions, and in such manner, as the
Collateral Agent shall in its sole discretion determine; and (H) generally,
to sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
the Collateral Agent were the absolute owner thereof for all purposes, and
to do, at the Collateral Agent's option and the Borrower's expense, at any
time, or from time to time, all acts and things which the Collateral Agent
deems necessary to protect, preserve or realize upon the Collateral and the
Secured Parties' Liens thereon and to effect the intent of this Security
Agreement, all as fully and effectively as the Borrower might do.
The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) Other Powers. The Borrower also authorizes the Collateral Agent,
at any time and from time to time, to execute, in connection with the sale
provided for in Section 9 hereof, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
(c) No Duty on Secured Parties' Part. The powers conferred on the
Secured Parties hereunder are solely to protect the Secured Parties' interests
in the Collateral and shall not impose any duty upon any of the Secured Parties
to exercise any such powers. The Secured Parties shall be accountable only for
amounts that they actually receive as a result of the exercise of such powers,
and neither they nor any of their officers, directors, employees or agents shall
be responsible to the Borrower for any act or failure to act hereunder, except
for their own gross negligence or willful misconduct.
7. Performance by Collateral Agent of Borrower's Obligations. If the
Borrower fails to perform or comply with any of its agreements contained herein
and the Collateral Agent, as provided for by the terms of this Security
Agreement, shall itself perform or comply, or otherwise cause performance or
compliance, with such agreement, the expenses of the Collateral Agent incurred
in connection with such performance or compliance,
<PAGE> 18
together with interest thereon at a rate per annum 2% above the CIBC Alternate
Base Rate at the time of such failure to perform or comply, shall be payable by
the Borrower to the Collateral Agent on demand and shall constitute Obligations
secured hereby.
8. Proceeds. In addition to the rights of the Secured Parties
specified in Section 3(d) with respect to payments of Accounts, it is agreed
that if an Event of Default shall occur and be continuing (a) upon demand by the
Collateral Agent all Proceeds received by the Borrower consisting of cash,
checks and other near-cash items shall be held by the Borrower in trust for the
Secured Parties, segregated from other funds of the Borrower, and shall,
forthwith upon receipt by the Borrower, be turned over to the Collateral Agent
in the exact form received by the Borrower (duly indorsed by the Borrower to the
Collateral Agent, if required), and (b) any and all such Proceeds received by
the Collateral Agent (whether from the Borrower or otherwise) may, in the sole
discretion of the Collateral Agent, be held by the Collateral Agent for the
benefit of the Secured Parties as collateral security for, and/or then or at any
time thereafter may be applied by the Collateral Agent against, the Obligations
(whether matured or unmatured), such application to be in such order as required
by Section 9.2 of the Credit Agreement. Any balance of such Proceeds remaining
after the Obligations shall have been paid in full, the Commitment shall have
been terminated and the Merchandise Letters of Credit shall have been cancelled
or shall have expired shall be paid over to the Borrower or to whomsoever may be
lawfully entitled to receive the same.
9. Remedies.
(a) General. If an Event of Default shall occur and be continuing,
the Collateral Agent, on behalf of the Secured Parties may exercise, in addition
to all other rights and remedies granted to them in this Security Agreement and
in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the Collateral Agent, without demand
of performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Borrower or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or office of
any of the Secured Parties or elsewhere upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk. The Secured Parties
shall have the right upon any such
<PAGE> 19
public sale or sales, and, to the extent permitted by law, upon any such private
sale or sales, to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption in the Borrower, which right or equity is
hereby waived or released. The Borrower further agrees, at the Collateral
Agent's request, to assemble the Collateral and make it available to the
Collateral Agent at places which the Collateral Agent shall reasonably select,
whether at the Borrower's premises or elsewhere. The Collateral Agent shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the Secured
Parties hereunder, including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Obligations, in such
order, subject to the Inter-Facility Agreement, as required by Section 9.2 of
the Credit Agreement, and only after such application and after the payment by
the Collateral Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, need the
Collateral Agent account for the surplus, if any, to the Borrower. To the
extent permitted by applicable law, the Borrower waives all claims, damages and
demands it may acquire against any of the Secured Parties arising out of the
exercise by it of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least 10 days before such sale or other
disposition. The Borrower shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Obligations and the fees and disbursements of any attorneys employed by
any of the Secured Parties to collect such deficiency.
(b) Louisiana Remedies. For purposes of executory process under
applicable Louisiana law (and only for such purposes), upon the occurrence and
during the continuance of an Event of Default, the Borrower hereby acknowledges
the indebtedness owed under the Obligations, CONFESSES JUDGMENT thereon and
consents that judgment be rendered and signed, whether during the court's term
or during vacation, in favor of the Collateral Agent, for the benefit of the
Secured Parties, for the full amount of the Obligations. Upon the occurrence of
an Event of Default, and in addition to all of its rights, powers and remedies
under this Security Agreement and applicable law, the Collateral Agent may, at
its option, cause all or any part of the Collateral located in Louisiana (the
"Louisiana Collateral") to be seized and sold under executory process or under
writ of fieri facias issued in execution of an ordinary judgment obtained upon
the Obligations, without appraisement to the highest bidder, for cash or under
such terms as the Collateral Agent deems acceptable. The Borrower hereby waives
all and every appraisement of the Louisiana Collateral and waives and renounces
<PAGE> 20
the benefit of appraisement and the benefit of all laws relative to the
appraisement of the Louisiana Collateral seized and sold under executory or
other legal process. The Borrower agrees to waive, and does hereby specifically
waive:
(1) the benefit of appraisement provided for in Articles 2332, 2336,
2723 and 2724, Louisiana Code of Civil Procedure, and all other
laws conferring such benefits;
(2) the demand and three days delay accorded by Articles 2639 and
2721, Louisiana Code of Civil Procedure;
(3) the notice of seizure required by Articles 2293 and 2721,
Louisiana Code of Civil Procedure;
(4) the three days delay accorded by Articles 2331 and 2722,
Louisiana Code of Civil Procedure;
(5) the benefit of the other provisions of Articles 2331, 2722 and
2723, Louisiana Code of Civil Procedure;
(6) the benefit of the provisions of any other articles of the
Louisiana Code of Civil Procedure not specifically mentioned
above; and
(7) all rights of division and discussion with respect to the
Obligations.
In the event the Collateral Agent elects, at its option, to enter suit via
ordinaria on the Obligations, in addition to the foregoing confession of
judgment, the Borrower hereby waives citation, other legal process and legal
delays and hereby consents that judgment for the unpaid principal due on the
Obligations, together with interest, attorneys' fees, costs and other charges
that may be due on the Obligations, be rendered and signed immediately.
Pursuant to the authority contained in La. R.S. 9:5136 through 9:5140.1, the
Borrower and the Collateral Agent do hereby expressly designate the Collateral
Agent or its designee to be keeper or receiver ("Keeper") for the benefit of the
Collateral Agent or any assignee of the Collateral Agent, such designation to
take effect immediately upon any seizure of any of the Louisiana Collateral
under writ of executory process or under writ of sequestration or fieri facias
as an incident to an action brought by the Collateral Agent. The fees of the
Keeper are hereby fixed at 5% of the amount due or sued for or claimed or sought
to be protected, preserved or enforced in the proceeding for the recognition of
the security interest created hereby, and the payment of such fees shall be
secured by the security interest in the Louisiana Collateral granted in this
Security Agreement.
<PAGE> 21
10. Limitation on Duties Regarding Preservation of Collateral. The
Collateral Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Collateral Agent deals with similar property for its own account. None of the
Secured Parties, nor any of its respective directors, officers, employees or
agents shall be liable for failure to demand, collect or realize upon all or any
part of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Borrower or otherwise.
11. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
12. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Paragraph Headings. The paragraph headings used in this Security
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
14. No Waiver; Cumulative Remedies. None of the Secured Parties
shall by any act (except by a written instrument pursuant to Section 15 hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default or in
any breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of any Secured Party, any right, power
or privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by any Secured Party of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which such
Secured Party would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or concurrently
and are not exclusive of any rights or remedies provided by law or at equity.
15. Waivers and Amendments; Successors and Assigns; Governing Law.
None of the terms or provisions of this Security Agreement may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Borrower
<PAGE> 22
and the Collateral Agent, provided that any provision of this Security Agreement
may be waived by the Collateral Agent in a written letter or agreement executed
by the Collateral Agent or by telex or facsimile transmission from the
Collateral Agent. This Security Agreement shall be binding upon the successors
and assigns of the Borrower and shall inure to the benefit of the Secured
Parties and their respective successors and assigns. THIS SECURITY AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
16. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, telex, telecopy or
similar writing) and shall be given to such party at its address or telex or
telecopy number set forth on Schedule I to the Credit Agreement or such other
address or telex or telecopy number as such party may hereafter specify for the
purpose by notice to the Collateral Agent and the Borrower. Each such notice,
request or other communication shall be given (i) by hand delivery, (ii) by
telex, with appropriate answerback to be received, (iii) by nationally
recognized courier service or (iv) by telecopy, receipt confirmed. Each such
notice, request or communication shall be effective (i) if delivered by hand or
by nationally recognized courier service, when delivered at the address set
forth on such signature pages and (ii) if given by telex or telecopy, when such
telex or telecopy is transmitted to the telex or telecopy number, as the case
may be, specified in this Section and the appropriate answerback or confirmation
is received.
17. Authority of Collateral Agent. The Borrower acknowledges that
the rights and responsibilities of the Collateral Agent under this Security
Agreement with respect to any action taken by the Collateral Agent or the
exercise or non-exercise by the Collateral Agent of any option, right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Security Agreement shall, as among the Secured Parties, be governed
by the Credit Agreement and the Inter-Facility Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Collateral Agent and the Borrower, the Collateral Agent shall be
conclusively presumed to be acting as agent for the Secured Parties with full
and valid authority so to
<PAGE> 23
act or refrain from acting, and the Borrower shall not be under any obligation,
or entitlement, to make any inquiry respecting such authority.
18. Privity. Notwithstanding anything contained herein, in the other
Credit Documents or elsewhere to the contrary, no Merchandise Letter of Credit
Bank shall be entitled to the benefits of this Security Agreement until such
time as such Merchandise Letter of Credit Bank has agreed in writing to be bound
by the terms hereof and of the Inter-Facility Agreement and to appoint the
Collateral Agent to act as collateral agent on its behalf.
<PAGE> 24
IN WITNESS WHEREOF, the Borrower and the Collateral Agent have caused
this Security Agreement to be duly executed and delivered as of the date first
above written.
PAYLESS CASHWAYS, INC.
By s/Greg Drown
--------------------------
Title: Asst. Treasurer
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
as Collateral Agent
By: s/Marybeth Ross
--------------------------
Title: Authorized Signatory
Exhibit 4.6
<PAGE> 1
SUBSIDIARY GUARANTEE
GUARANTEE, dated as of November 18, 1994, between SOMERVILLE LUMBER
AND SUPPLY CO., INC., a Massachusetts corporation (the "Guarantor"), and
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY ("CIBC"), as Collateral
Agent (in such capacity, together with any successor collateral agent, the
"Collateral Agent") made for the benefit of the Collateral Agent, CIBC, as
Administrative Agent (in such capacity, the "Administrative Agent"), The Bank of
Nova Scotia, NationsBank of Texas, N.A. and the Bank of America National Trust
and Savings Association, as Co-Agents (in such capacity, the "Co-Agents"), the
banks and other financial institutions (the "Banks") from time to time parties
to the Credit Agreement, dated as of November 18, 1994, among Payless Cashways,
Inc. (the "Borrower"), the Administrative Agent, the Collateral Agent, the Co-
Agents and the Banks (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement") and Commerce Bank, N.A. and any other bank
which shall hereafter issue commercial letters of credit pursuant to the
Merchandise Letter of Credit Facility (as hereinafter defined) (the "Merchandise
Letter of Credit Bank"). Terms defined in the Credit Agreement are used herein
as therein defined unless otherwise defined herein. The Collateral Agent, the
Administrative Agent, the Co-Agents, the Banks and the Merchandise Letter of
Credit Bank are collectively referred to herein as the "Secured Parties".
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, the Secured Parties have
severally agreed to make extensions of Credit to the Borrower upon the terms and
subject to the conditions set forth therein;
WHEREAS, the Borrower and the Merchandise Letter of Credit Bank are
parties to the Letter of Credit Issuance and Reimbursement Agreement dated as of
November 18, 1994, as amended (as such agreement may be amended, supplemented,
otherwise modified or replaced from time to time with the consent of the
Required Banks, the "Merchandise Letter of Credit Facility"), pursuant to which
the Merchandise Letter of Credit Bank makes available to the Borrower up to
$15,000,000 of commercial letters of credit at any one time outstanding (the
"Merchandise Letters of Credit");
WHEREAS, the Borrower owns directly all of the issued and outstanding
stock of the Guarantor;
<PAGE> 2
WHEREAS, the Borrower and the Guarantor are engaged in related
businesses, and the Guarantor will derive substantial direct and indirect
benefit from the making of the extensions of credit to the Borrower pursuant to
the Credit Agreement; and
WHEREAS, it is a condition precedent to the effectiveness of the
Credit Agreement that the Guarantor execute and deliver to the Collateral Agent
this Guarantee for the benefit of the Secured Parties;
NOW, THEREFORE, in consideration of the premises and to induce the
Collateral Agent, the Administrative Agent, the Co-Agents and the Banks to enter
into the Credit Agreement and to induce the Banks to make respective loans and
to issue and participate in the letters of credit (the "Bank Letters of Credit")
provided for under the Credit Agreement and to induce the Merchandise Letter of
Credit Bank to issue the Merchandise Letters of Credit provided for under the
Merchandise Letter of Credit Facility and for other good and valuable
consideration receipt of which is hereby acknowledged, the Guarantor hereby
agrees with the Collateral Agent, for the benefit of the Secured Parties, as
follows:
The Guarantor irrevocably and unconditionally guarantees to the
Collateral Agent, for the benefit of the Secured Parties, payment of (and not
merely collection with respect to) the unpaid principal amount of, and interest
on (including, without limitation, interest accruing after the maturity of the
Loans and interest accruing (or which would otherwise accrue) after the filing
of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding)
the Notes and all other obligations and liabilities of the Borrower to the
Secured Parties, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, the Credit Agreement, the Notes, the Merchandise
Letter of Credit Facility, the Letters of Credit, the other Credit Documents and
any other document made, delivered or given in connection therewith or herewith,
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including, without limitation, all fees and
disbursements of counsel to any of the Secured Parties that are required to be
paid by the Borrower pursuant to the terms of the Credit Agreement or the other
Credit Documents) or otherwise (collectively, the "Obligations").
The Guarantor waives notice of acceptance of this guarantee and notice
of any liability to which it may apply, and waives presentment, demand of
payment, protest, notice of dishonor or nonpayment of any such liabilities, suit
or taking other action by any of the Secured Parties, and any other notice to,
any party liable thereon (including the Guarantor). Furthermore,
<PAGE> 3
the Guarantor waives any requirement that the Secured Parties commence any
proceedings or take any other action against the Borrower or any collateral
securing the Obligations.
The Guarantor represents and warrants to the Secured Parties that:
(i) the Guarantor has full corporate power, authority and legal right
to execute, deliver and perform this guarantee, and the execution, delivery
and performance of this guarantee have been duly authorized by all
necessary action on the part of the Guarantor, does not require any
approval or consent of any trustee or holders of any indebtedness or
obligations of the Guarantor and will not violate the certificate of
incorporation or by-laws of the Guarantor or any provision of law,
governmental regulation, order or decree or any provision of any indenture,
mortgage, contract or other agreement to which the Guarantor is party or by
which the Guarantor is bound, the failure to obtain such approval or comply
with such provision would have a Materially Adverse Effect upon the
Guarantor;
(ii) no consent, license, approval or authorization of, or
registration or declaration with, any governmental instrumentality,
domestic or foreign, or other person is required in connection with the
execution, delivery and performance by the Guarantor of this guarantee, the
failure so to obtain, give, file or take would have a Materially Adverse
Effect upon the Guarantor; and
(iii) this guarantee constitutes a legal, valid and binding obligation
of the Guarantor enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the
enforceability of creditors' rights generally and by general principles of
equity.
The Guarantor agrees that the foregoing representations and warranties
shall be deemed to have been made by the Guarantor on the date of each extension
of credit under the Amended and Restated Credit Agreement on and as of such date
of such extension of credit as though made hereunder on and as of such date.
Any of the Secured Parties may at any time and from time to time
(whether or not after revocation or termination of this guarantee) without the
consent of, or notice (except as shall be required by applicable statute and
cannot be waived) to, the Guarantor, which consent and notice are hereby waived,
without incurring responsibility to the Guarantor, without impairing or
releasing the obligations of the Guarantor hereunder, upon or without any terms
or conditions and in whole or in part:
<PAGE> 4
1. change the manner, place or terms of payment, and/or change or
extend the time of payment of, renew, alter or increase, any of the Obligations,
any security therefor, or any liability incurred directly or indirectly in
respect thereof, and the guarantee herein made shall apply to the Obligations as
so changed, extended, renewed, altered or increased;
2. sell, exchange, release, surrender, realize upon or otherwise deal
with in any manner and in any order any property by whomsoever at any time
pledged or mortgaged to secure, or howsoever securing, the liabilities hereby
guaranteed or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and/or any offset
thereagainst, or fail to perfect, or continue the perfection of, any lien or
security interest in any such property, or delay in the perfection of any such
lien or security interest;
3. exercise or refrain from exercising any rights against the
Borrower or others (including the Guarantor) or otherwise act or refrain from
acting;
4. settle or compromise any liability hereby guaranteed, any security
therefor or any liability (including any of those hereunder) incurred directly
or indirectly in respect thereof or hereof, and may subordinate the payment of
all or any part thereof to the payment of any liability (whether due or not) of
the Borrower to creditors of the Borrower other than the Secured Parties and the
Guarantor; and
5. apply any sums by whomsoever paid or howsoever realized to any
Obligations to the Secured Parties regardless of what Obligations remain unpaid.
No invalidity, irregularity or unenforceability of all or any part of
the liabilities hereby guaranteed or of any security therefor shall affect,
impair or be a defense to this guarantee, and this guarantee is a primary
obligation of the Guarantor.
This guarantee is a continuing one and all liabilities to which it
applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. This guarantee shall remain in full force
and effect and may not be terminated until the payment in full in cash of the
Obligations, the expiration or cancellation of all Letters of Credit and the
termination of the Credit Agreement, the Merchandise Letter of Credit Facility
and the Commitments provided for in the Credit Agreement cancelled or expired.
All notices provided to be given to the Collateral Agent herein shall
be sent by registered or certified mail, return receipt requested.
<PAGE> 5
Any and all rights and claims of the Guarantor against the Borrower or
any of its property, arising by reason of any payment by the Guarantor to the
Collateral Agent pursuant to the provisions of this guarantee, shall be
subordinate and subject in right of payment to the prior payment in full in cash
of all the Obligations, the expiration or cancellation of all Letters of Credit
and the termination of the Credit Agreement, the Merchandise Letter of Credit
Facility and the Commitments provided for in the Credit Agreement. If any
amount shall be paid to the Guarantor on account of such rights and claims at a
time when all of the Obligations shall not have been paid in full, such amount
shall be held by the Guarantor in trust for the Secured Parties segregated from
other funds of the Guarantor, and shall, forthwith upon receipt by the
Guarantor, be turned over to the Collateral Agent in the exact form received by
the Guarantor (duly indorsed by the Guarantor to the Collateral Agent, if
required), to be applied against the Obligations, subject to the Inter-Facility
Agreement, in such order as required by Section 9.2 of the Credit Agreement.
If there shall occur an Event of Default, then and in any such event,
and at any time thereafter, the Collateral Agent may, without notice to the
Borrower or any aforesaid Person, make the Obligations whether or not then due,
immediately due and payable hereunder as to the Guarantor, and the Collateral
Agent shall be entitled to enforce the obligations of the Guarantor hereunder;
provided that if there shall occur an Event of Default specified in clause (f)
or (g) of Section 9.1 of the Credit Agreement with respect to the Guarantor,
then and in any such event the Obligations shall automatically become
immediately due and payable hereunder as to the Guarantor, and the Collateral
Agent shall be entitled to enforce the obligations of the Guarantor hereunder.
In the case of any proceedings to collect any liabilities of the
Guarantor to the Collateral Agent, the Guarantor shall pay all costs and
expenses of every kind for collection, including reasonable attorneys' fees, and
after deducting such costs and expenses from the proceeds of collection, the
Collateral Agent may apply any residue to pay any of such liabilities of the
Guarantor, who shall continue liable for any deficiency, with interest.
If claim is ever made upon any of the Secured Parties for repayment or
recovery of any amount or amounts received by such Secured Party in payment or
on account of any of the Obligations and such Secured Party repays all or part
of said amount by reason of (a) any judgment, decree or order of any court or
administrative body having jurisdiction over such Secured Party or any of its
property, or (b) any settlement or compromise of any such claim effected by such
Secured Party with any such claimant (including the Borrower), then and in such
event the Guarantor agrees that any such judgment, decree, order, settlement or
compromise shall be binding upon the Guarantor,
<PAGE> 6
notwithstanding any revocation hereof or the cancellation of any note or other
instrument evidencing any Obligations, and the Guarantor shall be and remain
liable to the Collateral Agent hereunder for the amount so repaid or recovered
to the same extent as if such amount had never originally been received by such
Secured Party.
Any acknowledgment or new promise, whether by payment of principal or
interest or otherwise and whether by the Borrower or others (including the
Guarantor), with respect to any of the Obligations shall, if the statute of
limitations in favor of the Guarantor against the Collateral Agent shall have
commenced to run, toll the running of such statute of limitations and, if the
period of such statute of limitations shall have expired, prevent the operation
of such statute of limitations.
The Guarantor shall pay to the Collateral Agent all costs and
expenses, including attorneys' fees, incurred by any of the Secured Parties in
connection with seeking to enforce any of the liabilities or obligations of the
Guarantor hereunder.
Notwithstanding anything herein to the contrary, the Guarantor shall
be liable under this guarantee and the other Credit Documents only for amounts
not in excess of the Guarantor's Maximum Guaranteed Amount as determined at the
Determination Date (as each such term is hereafter defined) for the Guarantor;
provided, that the Maximum Guaranteed Amount for the Guarantor hereunder shall
in no event exceed the amount which can be guaranteed by the Guarantor under
applicable federal and state laws relating to the insolvency of debtors. For
purposes hereof, the following terms shall have the following meanings:
"Adjusted Net Worth" of the Guarantor shall mean, as of any date of
determination thereof, the excess of (i) the amount of the "present fair
saleable value" of the assets of the Guarantor as of the date of such
determination, over (ii) the amount of all "liabilities of the Guarantor,
contingent or otherwise", as of the date of such determination, as such
quoted terms are determined in accordance with applicable federal and state
laws governing determinations of the insolvency of debtors.
"Determination Date" shall mean, with respect to the Guarantor, the
earlier of (a) the date of commencement of a case under Title 11 of the
United States Code in which the Guarantor is a debtor and (b) the date
enforcement hereunder is sought with respect to the Guarantor.
"Extension of Credit" shall mean (i) all loans or advances made to the
Borrower under any Credit Document, (ii) all letters of credit issued for
the account of the Borrower under any Credit Document, (iii) all bankers'
acceptances created for the account of the Borrower under any Credit
Document and (iv) all other extensions of credit
<PAGE> 7
to or for the benefit of the Borrower under any Credit Document.
"Maximum Guaranteed Amount" for the Guarantor shall mean, as of the
Determination Date for the Guarantor, the sum of (i) an amount equal to the
sum of each Extension of Credit (or portion thereof) the proceeds of which
are used to make a valuable transfer to the Guarantor plus interest on such
amount at the rate specified in the Credit Agreement plus (ii) the greater
of (I) ninety-five percent (95%) of the Adjusted Net Worth of the Guarantor
at the date of the execution of this guarantee before giving effect to any
Extensions of Credit made on such date and (II) ninety-five percent (95%)
of the Adjusted Net Worth of the Guarantor at the Determination Date for
the Guarantor. For purposes hereof, the proceeds of an Extension of Credit
(or portion thereof) are considered to be used to make a valuable transfer
to the Guarantor if such proceeds are used to (i) make a loan, advance or
capital contribution to the Guarantor, (ii) acquire from the Guarantor debt
securities or other obligations of the Guarantor, (iii) acquire property,
any interest in which is transferred to the Guarantor (but only to the
extent of the economic benefit to the Guarantor of the interest so
transferred), (iv) purchase equity securities of the Guarantor or (v)
otherwise confer, directly or indirectly, an economic benefit on the
Guarantor (but only to the extent of such benefit).
The Guarantor agrees that the Obligations may at any time and from
time to time exceed the Guarantor's Maximum Guaranteed Amount without impairing
this guarantee or affecting the rights and remedies of the Secured Parties
hereunder.
Whenever any amount owing to any Bank by the Guarantor hereunder shall
not be paid when due (whether at the stated maturity thereof, by acceleration or
otherwise), such Bank is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set off and apply against such overdue
amount any and all monies, securities and other property of the Guarantor and
the proceeds thereof, now or hereafter held or received by, or in transit to,
such Bank from or for the Guarantor, whether for safekeeping, custody, pledge,
transmission, collection or otherwise and all deposits (general or special, time
or demand, provisional or final) at any time held and other indebtedness at any
time owing by such Bank to or for the credit or the account of the Guarantor.
Each Bank agrees promptly to notify the Guarantor after any such set-off and
application made by such Bank, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of
each Bank under this paragraph are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which such Bank may
have.
<PAGE> 8
No delay on the part of the Collateral Agent in exercising any of its
options, powers or rights, or partial or single exercise thereof, shall
constitute a waiver thereof. No waiver of any of its rights hereunder, and no
modification or amendment of this guarantee, shall be deemed to be made by the
Collateral Agent unless the same shall be in writing, duly signed on behalf of
the Collateral Agent, and each such waiver, if any, shall apply only with
respect to the specific instance involved, and shall in no way impair the rights
of the Collateral Agent or the obligations of the Guarantor to the Collateral
Agent in any other respect at any other time.
The Guarantor waives the right of trial by jury in the event of any
litigation between the parties hereto in respect of any matter arising under
this guarantee or any other Credit Document to which it is a party and agrees
that should the Collateral Agent bring any judicial proceedings in relation to
any such matter, the Guarantor will not interpose any counterclaim or setoff of
any nature.
THIS GUARANTEE AND THE RIGHTS AND OBLIGATIONS OF THE COLLATERAL AGENT
AND OF THE GUARANTOR HEREUNDER SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK; AND THIS GUARANTEE IS BINDING UPON THE
GUARANTOR, ITS SUCCESSORS OR ASSIGNS, AND SHALL INURE TO THE BENEFIT OF THE
COLLATERAL AGENT, ITS SUCCESSORS OR ASSIGNS. In the event that the Collateral
Agent brings any action or suit in any court of record of New York State or the
Federal Government to enforce any or all liabilities of the Guarantor hereunder,
service of process may be made upon the Guarantor by mailing a copy of the
summons to the Guarantor at the address below set forth. The term "Collateral
Agent" includes any agent of the Collateral Agent acting for it.
Notwithstanding anything contained herein, in the other Credit
Documents or elsewhere to the contrary, no Merchandise Letter of Credit Bank
shall be entitled to the benefits of this Guarantee until such time as such
Merchandise Letter of Credit Bank has agreed in writing to be bound by the terms
hereof and of the Inter-Facility Agreement and to appoint the Collateral Agent
to act as collateral agent on its behalf.
If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Secured Parties in order to carry
out the intentions of the parties hereto as nearly as may be possible; and (ii)
the invalidity or unenforceability of any provision hereof in any jurisdiction
shall not affect the validity or enforceability of such provision in any other
jurisdiction.
THE GUARANTOR AND THE COLLATERAL AGENT HEREBY WAIVE, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY
<PAGE> 9
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS GUARANTEE, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR
ENFORCEMENT HEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN THE
GUARANTOR AND THE COLLATERAL AGENT. THE GUARANTOR HEREBY IRREVOCABLY CONSENTS
TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, OF ANY FEDERAL COURT LOCATED IN THE CITY
OF NEW YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS GUARANTEE OR ANY DOCUMENT OR INSTRUMENT DELIVERED PURSUANT TO
THIS GUARANTEE. THE GUARANTOR HEREBY WAIVES THE DEFENSES OF FORUM NON
CONVENIENS AND IMPROPER VENUE.
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Guarantee to
be duly executed by their respective authorized officers as of the day and year
first above written
SOMERVILLE LUMBER AND SUPPLY CO.,
INC.
By s/Stephen A. Lightstone
___________________________
Title: Treasurer
Address:
c/o Payless Cashways, Inc.
2300 Main
Kansas City, Missouri 64141
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, as Collateral
Agent
By s/Marybeth Ross
___________________________
Title: Authorized Signatory
<PAGE> 1
Exhibit 4.7
SUBSIDIARY SECURITY AGREEMENT
SUBSIDIARY SECURITY AGREEMENT, dated as of November 18, 1994, made by
SOMERVILLE LUMBER AND SUPPLY CO., INC., a Massachusetts corporation (the
"Company"), in favor of CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY
("CIBC"), as Collateral Agent (in such capacity, together with any successor
collateral agent, the "Collateral Agent"), for the benefit of the Collateral
Agent, CIBC, as Administrative Agent (in such capacity, the "Administrative
Agent"), The Bank of Nova Scotia, NationsBank of Texas, N.A. and the Bank of
America National Trust and Savings Association, as Co-Agents (in such capacity,
the "Co-Agents"), the banks and other financial institutions (the "Banks") from
time to time parties to the Credit Agreement, dated as of November 18, 1994,
among Payless Cashways, Inc., an Iowa corporation ("Payless"), the Collateral
Agent, the Administrative Agent, the Co-Agents and the Banks (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement")
and Commerce Bank, N.A. and any other bank which shall hereafter issue
commercial letters of credit pursuant to the Merchandise Letter of Credit
Facility (as hereinafter defined) (the "Merchandise Letter of Credit Bank").
The Collateral Agent, the Administrative Agent, the Co-Agents, the Banks, and
the Merchandise Letter of Credit Bank are collectively referred to herein as the
"Secured Parties."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Secured Parties have
severally agreed to make extensions of credit to Payless upon the terms and
subject to the conditions set forth therein;
WHEREAS, Payless and the Merchandise Letter of Credit Bank are parties
to the Letter of Credit Issuance and Reimbursement Agreement dated as of
November 18, 1994, as amended (as such agreement may be amended, supplemented,
otherwise modified or replaced from time to time with the consent of the
Required Banks, the "Merchandise Letter of Credit Facility"), pursuant to which
the Merchandise Letter of Credit Bank makes available to Payless up to
$15,000,000 of commercial letters of credit at any one time outstanding (the
"Merchandise Letters of Credit");
<PAGE> 2
WHEREAS, the Company is a direct subsidiary of Payless;
WHEREAS, the Company and Payless are engaged in related businesses and
the Company will derive substantial direct and indirect benefit from the
extensions of credit to Payless under the Credit Agreement; and
WHEREAS, it is a condition precedent to the effectiveness of the
Credit Agreement that the Company shall have executed and delivered this
Security Agreement to the Collateral Agent for the benefit of the Secured
Parties;
NOW, THEREFORE, in consideration of the premises and to induce the
Collateral Agent, the Administrative Agent, the Co-Agents and the Banks to enter
into the Credit Agreement and to induce the Banks to make their respective loans
and to issue and participate in the letters of credit (the "Bank Letters of
Credit") provided for under the Credit Agreement and to induce the Merchandise
Letter of Credit Bank to issue the Merchandise Letters of Credit provided for
under the Merchandise Letter of Credit Facility and for other good and valuable
consideration receipt of which is hereby acknowledged, the Company hereby agrees
with the Collateral Agent, for the benefit of the Secured Parties, as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Credit Agreement and used herein are so used as so defined; the
following terms which are defined in the Uniform Commercial Code in effect in
the State of New York on the date hereof are used herein as so defined:
Accounts, Chattel Paper, Documents, Equipment, Farm Products, General
Intangibles, Instruments and Proceeds; and the following terms shall have the
following meanings:
"Code" means the Uniform Commercial Code as from time to time in
effect in the State of New York.
"Collateral" shall have the meaning assigned to it in Section 2 of
this Security Agreement.
"Contractor Receivables" means those certain commercial credit
accounts sold by Payless and its Subsidiaries (and including any documents,
instruments, chattel paper or intangibles evidencing any such transferred
receivable or the transaction giving rise thereto) (i) pursuant to the
terms of the GE Credit Program Documents or (ii) to any other Person
pursuant to any similar contractual arrangement solely to the extent such
an arrangement is permitted by Section 8.18 of the Credit Agreement.
"Contracts" means all contracts of the Company listed on Schedule I
and any interest rate swap, cap or other interest rate lending arrangement,
as the same
<PAGE> 3
may from time to time be amended, supplemented or otherwise modified,
including, without limitation, (a) all rights of the Company to receive
moneys due and to become due to it thereunder or in connection therewith,
(b) all rights of the Company to damages arising out of, or for, breach or
default in respect thereof and (c) all rights of the Company to perform and
to exercise all remedies thereunder.
"GECC Receivables" means receivables (including any documents,
instruments, chattel paper or intangibles evidencing any such transferred
receivable or the transaction giving rise thereto) (i) payable to Monogram
Credit Card Bank of Georgia pursuant to the terms of the GE Credit Program
Documents arising out of private label credit card sales of merchandise or
services made by Payless and its Subsidiaries or (ii) payable to or
purchased by any other Person pursuant to the terms of any similar
contractual arrangement solely to the extent such an arrangement is
permitted by Section 8.18 of the Credit Agreement arising out of private
label credit card sales of merchandise or services made by Payless and its
Subsidiaries.
"Liened Trademarks" has the meaning set forth in Section 5(q) hereof.
"Guarantee Obligations" means "Obligations" as defined in the
Somerville Guarantee.
"Obligations" means all obligations and liabilities of the Company
under the Subsidiary Guarantee.
"Security Agreement" means this Security Agreement, as
amended, supplemented or otherwise modified from time to time.
"Trademarks" means (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers owned by the
Company, and the goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States Patent
and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country or any political subdivision
thereof, or otherwise and (b) all renewals thereof.
"Trademark License" means any agreement, written or oral, providing
for the grant by or to the Company of any right to use any Trademark.
<PAGE> 4
"Vehicles" means all cars, trucks, trailers, construction and earth
moving equipment and other vehicles covered by a certificate of title law
of any state and, in any event, shall include, without limitation, the
vehicles listed on Schedule III hereto and all tires and other
appurtenances to any of the foregoing.
2. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Obligations, the Company hereby grants to
the Collateral Agent for the benefit of the Secured Parties a security interest
in all of the following property now owned or at any time hereafter acquired by
the Company or in which the Company now has or at any time in the future may
acquire any right, title or interest (collectively, the "Collateral"):
(i) all Accounts (it being agreed that no Contractor
Receivable, GECC Receivable or receivable the obligor
on which is a Governmental Authority shall constitute
Collateral for purposes of this Security Agreement);
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment (including, without limitation, mobile
goods);
(vi) all General Intangibles;
(vii) all Instruments;
(viii) all Trademarks listed on Schedule II;
(ix) all Trademark Licenses listed on Schedule II;
(x) all Vehicles; and
(xi) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing;
but excluding any collateral subject to the liens in existence on the date
hereof granted under the Prudential Real Estate Financing.
<PAGE> 5
3. Rights of Secured Parties; Limitations on Secured Parties'
Obligations.
(a) Company Remains Liable under Accounts and Contracts. Anything
herein to the contrary notwithstanding, the Company shall remain liable under
each of the Accounts and Contracts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise to each such Account and in
accordance with and pursuant to the terms and provisions of each such Contract.
None of the Secured Parties shall have any obligation or liability under any
Account (or any agreement giving rise thereto) or under any Contract by reason
of or arising out of this Security Agreement or the receipt by such Secured
Party of any payment relating to such Account or Contract pursuant hereto, nor
shall any Secured Party be obligated in any manner to perform any of the
obligations of the Company under or pursuant to any Account (or any agreement
giving rise thereto) or under or pursuant to any Contract, to make any payment,
to make any inquiry as to the nature or the sufficiency of any payment received
by it or as to the sufficiency of any performance by any party under any Account
(or any agreement giving rise thereto) or under any Contract, to present or file
any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
(b) Notice to Account Debtors and Contracting Parties. Upon the
request of the Collateral Agent at any time after the occurrence and during the
continuance of an Event of Default, the Company shall notify account debtors on
the Accounts and parties to the Contracts that the Accounts and the Contracts
have been assigned to the Collateral Agent for the benefit of the Secured
Parties, and that payments in respect thereof shall be made directly to the
Collateral Agent. The Collateral Agent may in its own name or in the name of
others communicate with account debtors on the Accounts and parties to the
Contracts to verify with them to its satisfaction the existence, amount and
terms of any Accounts or Contracts.
(c) Analysis of Accounts. The Collateral Agent shall have the right
to make test verifications of the Accounts in any manner and through any medium
that it reasonably considers advisable, and the Company shall furnish all such
assistance and information as the Collateral Agent may reasonably require in
connection therewith. At any time and from time to time, upon the Collateral
Agent's request and at the expense of the Company, the Company shall cause
independent public accountants or others satisfactory to the Collateral Agent to
furnish to the Collateral Agent reports showing reconciliations, aging and test
verifications of, and trial balances for, the Accounts.
(d) Collections on Accounts. The Collateral Agent hereby authorizes
the Company to collect the Accounts and the
<PAGE> 6
Collateral Agent may curtail or terminate said authority at any time after the
occurrence and during the continuance of an Event of Default. If required by
the Collateral Agent at any time after the occurrence and during the continuance
of an Event of Default, any payments of Accounts, when collected by the Company,
shall be forthwith (and, in any event, within two Domestic Business Days)
deposited by the Company in the exact form received, duly indorsed by the
Company to the Collateral Agent if required, in a special collateral account
maintained by the Collateral Agent, subject to withdrawal by the Collateral
Agent for the account of the Secured Parties only, as hereinafter provided, and,
until so turned over, shall be held by the Company in trust for the Secured
Parties, segregated from other funds of the Company. Each deposit of any such
Proceeds shall be accompanied by a report identifying in reasonable detail the
nature and source of the payments included in the deposit. All Proceeds
constituting collections of Accounts while held by the Collateral Agent (or by
the Company in trust for the Secured Parties) shall continue to be collateral
security for all of the Obligations and shall not constitute payment thereof
until applied as hereinafter provided. At such intervals as may be agreed upon
by the Company and the Collateral Agent, or, if an Event of Default shall have
occurred and be continuing, at any time at the Collateral Agent's election, the
Collateral Agent shall apply all or any part of the funds on deposit in said
special collateral account on account of the Obligations in such order as
required by Section 9.2 of the Credit Agreement, and any part of such funds
which the Collateral Agent elects not so to apply and deems not required as
collateral security for the Obligations shall be paid over from time to time by
the Collateral Agent to the Company or to whomsoever may be lawfully entitled to
receive the same. At the Collateral Agent's request at any time when an Event
of Default shall have occurred and is then continuing, the Company shall deliver
to the Collateral Agent all original and other documents evidencing, and
relating to, the agreements and transactions which gave rise to the Accounts,
including, without limitation, all original orders, invoices and shipping
receipts.
4. Representations and Warranties. The Company hereby represents and
warrants that:
(a) Title; No Other Liens. Except for the Lien granted to the
Collateral Agent for the benefit of the Secured Parties pursuant to this
Security Agreement and the other Liens permitted to exist on the Collateral
pursuant to the Credit Agreement, the Company owns each item of the
Collateral free and clear of any and all Liens or claims of others. The
Company has not permitted any security agreement, financing statement or
other public notice with respect to all or any part of the Collateral to be
on file or of record in any public office, except such as may have been
filed in favor of the Collateral Agent, for the benefit of the
<PAGE> 7
Secured Parties, pursuant to this Security Agreement or as may be permitted
pursuant to the Credit Agreement.
(b) Perfected First Priority Liens. Upon the filing in the proper
locations of appropriate UCC financing statements, the Liens granted
pursuant to this Security Agreement constitute perfected Liens on the
Collateral in favor of the Collateral Agent, for the benefit of the Secured
Parties, which are prior to all other Liens on the Collateral (except for
existing Liens on the Collateral to the extent permitted by Section 8.10(i)
of the Credit Agreement and purchase money Liens to the extent permitted by
Section 8.10(vi) of the Credit Agreement) created by the Company and in
existence on the date hereof and which are enforceable as such against all
creditors of and purchasers from the Company and against any owner or
purchaser of the real property where any of the Equipment is located and
any present or future creditor obtaining a Lien on such real property.
(c) Accounts. Any amount which is at any time represented by the
Company to the Banks as owing by each account debtor or by all account
debtors in respect of the Accounts constituting part of the Collateral will
at such time be the correct amount actually owing by such account debtor or
debtors thereunder. No material amount payable to the Company under or in
connection with any Account is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Collateral Agent. The Company keeps
its records concerning all the Accounts at the locations listed on Schedule
IV.
(d) Contracts. No consent of any party (other than the Company) to
any Contract is required, or purports to be required, in connection with
the execution, delivery and performance of this Security Agreement. To the
best of the Company's knowledge, each Contract is in full force and effect
and constitutes a valid and legally enforceable obligation of the parties
thereto, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditor's rights generally, and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law). No consent or
authorization of, filing with or other act by or in respect of any
Governmental Authority is required in connection with the execution,
delivery, performance, validity or enforceability of any of the Contracts
by the Company or, to the best of the Company's knowledge, any other party
thereto, other than those which have been duly obtained, made or performed,
are in full
<PAGE> 8
force and effect and do not subject the scope of any such Contract to any
material adverse limitation, either specific or general in nature. Neither
the Company nor (to the best of the Company's knowledge) any other party to
any Contract is in default or is likely to become in default in the
performance or observance of any of the terms thereof. The Company has
fully performed all its obligations under each Contract. The right, title
and interest of the Company in, to and under each Contract are not, to the
best of the Company's knowledge, subject to any defense, offset,
counterclaim or claim which would materially adversely affect the value of
such Contract as Collateral, nor have any of the foregoing been asserted or
alleged against the Company as to any Contract. The Company has delivered
to the Collateral Agent a complete and correct copy of each Contract,
including all amendments, supplements and other modifications thereto. No
amount payable to the Company under or in connection with any Contract is
evidenced by any Instrument or Chattel Paper which has not been delivered
to the Collateral Agent.
(e) Equipment. As of the date hereof, the Equipment is kept at the
locations listed on Schedule IV hereto.
(f) Chief Executive Office. The Company's chief executive office and
chief place of business is located at 2300 Main, Kansas City, Missouri
64141.
(g) Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
(h) Trademarks. Schedule II hereto includes all material Trademarks
and Trademark Licenses owned by the Company in its own name as of the date
hereof. To the best of the Company's knowledge, each such Trademark is
valid, subsisting, unexpired, enforceable and has not been abandoned.
Except as set forth in such Schedule, none of such Trademarks is the
subject of any licensing or franchise agreement. No holding, decision or
judgment has been rendered by any Governmental Authority which would limit,
cancel or question the validity of any such Trademark or the Company's
ownership thereof. No action or proceeding is pending (i) seeking to
limit, cancel or question the validity of any such Trademark, or (ii)
which, if adversely determined, would have a material adverse effect on the
value of any such Trademark or the Company's ownership thereof.
<PAGE> 9
(i) Vehicles. Schedule III is a materially complete and correct list
of all Vehicles owned by the Company.
(j) Governmental Obligors. On the Effective Date, less than
$2,000,000 of the accounts receivable of the Company are owed to the
Company by obligors which are Governmental Authorities.
(k) Power and Authority; Authorization. The Company has the
corporate power and authority and the legal right to execute and deliver,
to perform its obligations under, and to grant the Lien on the Collateral
pursuant to, this Security Agreement and has taken all necessary corporate
action to authorize its execution, delivery and performance of, and grant
of the Lien on the Collateral pursuant to, this Security Agreement.
(l) Enforceability. This Security Agreement constitutes a legal,
valid and binding obligation of the Company enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by, general equitable
principles (whether enforcement is sought by proceedings in equity or at
law).
(m) No Conflict. The execution, delivery and performance of this
Security Agreement will not violate any provision of any Requirement of Law
or Contractual Obligation of the Company and will not result in the
creation or imposition of any Lien on any of the properties or revenues of
the Company pursuant to any Requirement of Law or Contractual Obligation of
the Company, except as contemplated hereby, the effect of which would have
a Materially Adverse Effect.
(n) No Consents, etc. No consent or authorization of, filing with,
or other act by or in respect of, any arbitrator or Governmental Authority
and no consent of any other Person (including, without limitation, any
stockholder or creditor of the Company), is required in connection with the
execution, delivery, performance, validity or enforceability of this
Security Agreement, where the failure so to obtain or make would have a
Materially Adverse Effect.
(o) No Litigation. No litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Company, threatened by or against the Company or against
any of its properties or revenues with respect
<PAGE> 10
to this Security Agreement or any of the transactions contemplated hereby,
as to which there is a reasonable likelihood of a Materially Adverse
Effect.
5. Covenants. The Company covenants and agrees with the Secured
Parties that, from and after the date of this Security Agreement until the
Obligations and the Guarantee Obligations are paid in full in cash, the
Merchandise Letters of Credit shall have expired or shall have been cancelled
and the Commitments are terminated:
(a) Further Documentation; Pledge of Instruments and Chattel Paper.
At any time and from time to time, upon the written request of the
Collateral Agent, and at the sole expense of the Company, the Company will
promptly and duly execute and deliver such further instruments and
documents and take such further action as the Collateral Agent may
reasonably request for the purpose of obtaining or preserving the full
benefits of this Security Agreement and of the rights and powers herein
granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the Liens created hereby. The Company also
hereby authorizes the Collateral Agent to file any such financing or
continuation statement without the signature of the Company to the extent
permitted by applicable law; provided the Collateral Agent delivers to the
Company a copy of each financing or continuation statement so filed as
promptly as possible after the filing thereof. A carbon, photographic or
other reproduction of this Security Agreement shall be sufficient as a
financing statement for filing in any jurisdiction. If any amount payable
under or in connection with any of the Collateral shall be or become
evidenced by any Instrument or Chattel Paper, such Instrument or Chattel
Paper shall be immediately delivered to the Collateral Agent, duly endorsed
in a manner satisfactory to the Collateral Agent, to be held as Collateral
pursuant to this Security Agreement.
(b) Indemnification. The Company agrees to pay, and to save the
Secured Parties harmless from, any and all liabilities, costs and expenses
(including, without limitation, legal fees and expenses) (i) with respect
to, or resulting from, any delay in paying, any and all excise, sales or
other taxes which may be payable or determined to be payable with respect
to any of the Collateral, (ii) with respect to, or resulting from, any
delay in complying with any Requirement of Law applicable to any of the
Collateral or (iii) in connection with any of the transactions contemplated
by this Security Agreement, but excluding any such
<PAGE> 11
liabilities, costs and expenses incurred by reason of the gross negligence
or willful misconduct of the party seeking to be indemnified. In any suit,
proceeding or action brought by any Secured Party under any Account or
Contract for any sum owing thereunder, or to enforce any provisions of any
Account or Contract, the Company will save, indemnify and keep such Secured
Party harmless from and against all expense, loss or damage suffered by
reason of any defense, setoff, counterclaim, recoupment or reduction or
liability whatsoever of the account debtor or obligor thereunder, arising
out of a breach by the Company of any obligation thereunder or arising out
of any other agreement, indebtedness or liability at any time owing to or
in favor of such account debtor or obligor or its successors from the
Company, but excluding any such liabilities, costs and expenses incurred by
reason of the gross negligence or willful misconduct of the party seeking
to be indemnified.
(c) Maintenance of Records. The Company will keep and maintain at
its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments
received and all credits granted with respect to the Accounts. For the
Secured Parties' further security, the Collateral Agent, for the benefit of
the Secured Parties, shall have a security interest in all of the Company's
books and records pertaining to the Collateral, and the Company shall make
available any such books and records to the Collateral Agent or to its
representatives during normal business hours at the request of the
Collateral Agent.
(d) Right of Inspection. The Secured Parties shall at all times have
full and free access during normal business hours to all the books,
correspondence and records of the Company, and the Secured Parties and
their respective representatives may examine the same, take extracts
therefrom and make photocopies thereof, and the Company agrees to render to
the Secured Parties at the Company's cost and expense, such clerical and
other assistance as may be reasonably requested with regard thereto. The
Secured Parties and their representatives shall at all times also have the
right to enter into and upon any premises where any of the Equipment is
located for the purpose of inspecting the same, observing its use or
otherwise protecting its interests therein.
(e) Compliance with Laws, etc. The Company will comply in all
material respects with all Requirements of Law applicable to the Collateral
or any part thereof or to the operation of the Company's business except
<PAGE> 12
where the necessity of compliance therewith is contested in good faith by
appropriate proceedings or where the failure to comply with would not have
a Materially Adverse Effect; provided that the Company must comply with any
Requirement of Law which the failure to do so would adversely affect the
Secured Parties' rights in the Collateral or the priority of their Liens on
the Collateral.
(f) Compliance with Terms of Contracts, etc. The Company will
perform and comply in all material respects with all its obligations under
the Contracts and all its other contractual obligations relating to the
Collateral.
(g) Payment of Obligations. The Company will pay promptly when due
all taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor,
materials and supplies) against or with respect to the Collateral, except
that no such charge need be paid if (i) the Company is not required to do
so pursuant to the Credit Agreement and (ii) such proceedings do not
involve any material danger of the sale, forfeiture or loss of any material
portion of the Collateral or any interest therein.
(h) Limitation on Liens on Collateral. The Company will not create,
incur or permit to exist, will defend the Collateral against, and will take
such other action as is necessary to remove, any Lien or claim on or to the
Collateral, other than the Liens created hereby and other than as permitted
pursuant to the Credit Agreement, and will defend the right, title and
interest of the Secured Parties in and to any of the Collateral against the
claims and demands of all Persons whomsoever.
(i) Limitations on Dispositions of Collateral. Except as permitted
under the Credit Agreement, the Company will not sell, transfer, lease or
otherwise dispose of any of the Collateral.
(j) Limitations on Modifications, Waivers, Extensions of Contracts
and Agreements Giving Rise to Accounts. The Company will not (i) amend,
modify, terminate or waive any provision of any Contract or any agreement
giving rise to a material Account in any manner which could reasonably be
expected to materially adversely affect the value of such Contract or
Account as Collateral, (ii) fail to exercise promptly and diligently each
and every material right which it may
<PAGE> 13
have under each Contract and material Account (other than any right of
termination) or (iii) fail to deliver to the Collateral Agent a copy of
each material demand, notice or document received by it relating in any way
to any Contract or material Account.
(k) Limitations on Discounts, Compromises, Extensions of Accounts.
Other than in the ordinary course of business, the Company will not grant
any extension of the time of payment of any of the Accounts, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partially, any Person liable for the payment thereof, or allow
any credit or discount whatsoever thereon.
(l) Maintenance of Equipment. The Company will maintain each item of
Equipment in good operating condition, ordinary wear and tear and
immaterial impairments of value and damage by the elements excepted, and
will provide all maintenance, service and repairs necessary for such
purpose.
(m) Maintenance of Insurance. The Company will maintain the
insurance required by Section 8.3 of the Credit Agreement.
(n) Further Identification of Collateral. The Company will furnish
to the Collateral Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as the Collateral Agent may reasonably
request, all in reasonable detail.
(o) Notices. The Company will advise the Collateral Agent promptly,
in reasonable detail, at the Collateral Agent's address set forth in the
Credit Agreement, (i) of any Lien (other than Liens created hereby or
permitted under the Credit Agreement) on, or claim asserted against, any of
the Collateral and (ii) of the occurrence of any other event which could
reasonably be expected to have a material adverse effect on the aggregate
value of the Collateral or on the Liens created hereunder.
(p) Changes in Locations, Name, etc. The Company will not (i) change
the location of its chief executive office/chief place of business from
that specified in Section 4(f) or remove its books and records from any
location specified in Section 4(c), (ii) permit any of the Equipment to be
kept in jurisdictions other than those listed on Schedule IV hereto or
(iii) change its name, identity or corporate structure to such an extent
that any financing statement filed by the Collateral Agent in connection
with this Security Agreement would
<PAGE> 14
become seriously misleading, unless it shall have given the Collateral
Agent at least 30 days prior written notice thereof.
(q) Trademarks. (i) Except with respect to any Trademark that the
Company shall reasonably determine is of negligible economic value to it,
the Company (either itself or through licensees) will, with respect to any
Trademark on which a Lien has been or shall be created pursuant to this
Agreement (a "Liened Trademark"), (1) continue to use each Liened Trademark
on each and every trademark class of goods applicable to its current line
as reflected in its current catalogs, brochures and price lists in order to
maintain such Liened Trademark in full force free from any claim of
abandonment for non-use, (2) maintain as in the past the quality of
products and services offered under such Liened Trademark, (3) employ such
Liened Trademark with the appropriate notice of registration, (4) not adopt
or use any mark which is confusingly similar or a colorable imitation of
such Liened Trademark unless the Collateral Agent, for the benefit of the
Secured Parties, shall obtain a perfected security interest in such mark
pursuant to this Security Agreement, and (5) not (and not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do any
act whereby any Liened Trademark may become invalidated.
(ii) The Company will notify the Collateral Agent immediately if
it knows, or has reason to know, that any application or registration
relating to any Liened Trademark may become abandoned or dedicated, or of
any adverse determination or development (including, without limitation,
the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office or any court or
tribunal in any country) regarding the Company's ownership of any Liened
Trademark or its right to register the same or to keep and maintain the
same.
(iii) Whenever the Company, either by itself or through any
agent, employee, licensee or designee, shall file an application for the
registration of any material Trademark with the United States Patent and
Trademark Office or any similar office or agency in any other country or
any political subdivision thereof, the Company shall report such filing to
the Collateral Agent within five Domestic Business Days after the last day
of the fiscal quarter in which such filing occurs. Upon request of the
Collateral Agent, the Company shall execute and deliver any and all
agreements, instruments, documents, and papers as the Collateral Agent may
request to create a security interest in favor of the Secured Parties in
any such material Trademark and the goodwill and general intangibles of the
Company relating thereto or represented thereby,
<PAGE> 15
and the Company hereby constitutes the Collateral Agent its attorney-in-
fact to execute and file, in the event of the failure of the Company to do
so, all such writings for the foregoing purposes, all acts of such attorney
being hereby ratified and confirmed; such power being coupled with an
interest is irrevocable until the Obligations are paid in full and the
Commitments are terminated and the Merchandise Letters of Credit shall have
been cancelled or shall have expired.
(iv) The Company will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States
Patent and Trademark Office, or any similar office or agency in any other
country or any political subdivision thereof in which the applicable Liened
Trademark is used by Payless, to maintain and pursue each application (and
to obtain the relevant registration) and to maintain each registration of
the Liened Trademarks, including, without limitation, filing of
applications for renewal, affidavits of use and affidavits of
incontestability.
(v) In the event that any Liened Trademark included in the
Collateral is infringed, misappropriated or diluted by a third party, the
Company shall promptly notify the Collateral Agent after it learns thereof
and shall, unless the Company shall reasonably determine that such Liened
Trademark is of negligible economic value to the Company which
determination the Company shall promptly report to the Collateral Agent,
promptly sue for infringement, misappropriation or dilution, to seek
injunctive relief where appropriate and to recover any and all damages for
such infringement, misappropriation or dilution, or take such other actions
as the Company shall reasonably deem appropriate under the circumstances to
protect such Liened Trademark.
(r) Vehicles. The Company will maintain each Vehicle in good
operating condition, ordinary wear and tear and immaterial impairments of
value and damage by the elements excepted, and will provide all
maintenance, service and repairs necessary for such purpose. Promptly
after the date hereof, and, with respect to any Vehicles acquired by the
Company subsequent to the date hereof, within 60 days after the date of
acquisition thereof, all applications for certificates of title indicating
the Collateral Agent's first priority Lien on the Vehicle covered by such
certificate, and any other necessary documentation, shall be filed in each
office in each jurisdiction which the Collateral Agent shall deem advisable
to perfect its Liens on the Vehicles.
<PAGE> 16
6. Collateral Agent's Appointment as Attorney-in-Fact.
(a) Powers. The Company hereby irrevocably constitutes and appoints
the Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Company and in the name of the
Company or in its own name, from time to time in the Collateral Agent's
discretion, for the purpose of carrying out the terms of this Security Agreement
where the Collateral Agent, in its sole discretion, determines that to do so is
necessary or appropriate to protect its interest in all or any portion of the
Collateral or the value thereof, to take any and all appropriate action and to
execute any and all documents and instruments which the Collateral Agent, in its
sole discretion, determines may be necessary or desirable to protect its
interest in all or any portion of the Collateral or the value thereof, and,
without limiting the generality of the foregoing, the Company hereby gives the
Collateral Agent the power and right, on behalf of the Company, without notice
to or assent by the Company, to do the following:
(i) in the case of any Account, at any time when the authority of the
Company to collect the Accounts has been curtailed or terminated pursuant
to the first sentence of Section 3(d) hereof, or in the case of any other
Collateral, at any time when any Event of Default shall have occurred and
is continuing, in the name of the Company or its own name, or otherwise, to
take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Account, Instrument, General Intangible or Contract or with respect to any
other Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by
the Collateral Agent for the purpose of collecting any and all such moneys
due under any Account, Instrument, General Intangible or Contract or with
respect to any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral (except where the Company is not required
to discharge such tax or Lien pursuant to the provisions of this Security
Agreement or the Credit Agreement), to effect any repairs or any insurance
called for by the terms of this Security Agreement or the Credit Agreement
and to pay all or any part of the premiums therefor and the costs thereof;
and
(iii) upon the occurrence and during the continuance of any Event of
Default, (A) to direct any
<PAGE> 17
party liable for any payment under any of the Collateral to make payment of
any and all moneys due or to become due thereunder directly to the
Collateral Agent or as the Collateral Agent shall direct; (B) to ask or
demand for, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (C) to sign and indorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices and
other documents in connection with any of the Collateral; (D) to commence
and prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any thereof
and to enforce any other right in respect of any Collateral; (E) to defend
any suit, action or proceeding brought against the Company with respect to
any Collateral; (F) to settle, compromise or adjust any suit, action or
proceeding described in clause (E) above and, in connection therewith, to
give such discharges or releases as the Collateral Agent may deem
appropriate; (G) to assign any Trademark (along with the goodwill of the
business to which any such Trademark pertains), throughout the world for
such term or terms, on such conditions, and in such manner, as the
Collateral Agent shall in its sole discretion determine; and (H) generally,
to sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
the Collateral Agent were the absolute owner thereof for all purposes, and
to do, at the Collateral Agent's option and the Company's expense, at any
time, or from time to time, all acts and things which the Collateral Agent
deems necessary to protect, preserve or realize upon the Collateral and the
Secured Parties' Liens thereon and to effect the intent of this Security
Agreement, all as fully and effectively as the Company might do.
The Company hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) Other Powers. The Company also authorizes the Collateral Agent,
at any time and from time to time, to execute, in connection with the sale
provided for in Section 9 hereof, any indorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
(c) No Duty on Secured Parties' Part. The powers conferred on the
Secured Parties hereunder are solely to protect the Secured Parties' interests
in the Collateral and shall not
<PAGE> 18
impose any duty upon any Secured Party to exercise any such powers. The Secured
Parties shall be accountable only for amounts that they actually receive as a
result of the exercise of such powers, and neither they nor any of their
officers, directors, employees or agents shall be responsible to the Company for
any act or failure to act hereunder, except for their own gross negligence or
willful misconduct.
7. Performance by Collateral Agent of Company's Obligations. If the
Company fails to perform or comply with any of its agreements contained herein
and the Collateral Agent, as provided for by the terms of this Security
Agreement, shall itself perform or comply, or otherwise cause performance or
compliance, with such agreement, the expenses of the Collateral Agent incurred
in connection with such performance or compliance, together with interest
thereon at a rate per annum 2% above the CIBC Alternate Base Rate at the time of
such failure to perform or comply, shall be payable by the Company to the
Collateral Agent on demand and shall constitute Obligations secured hereby.
8. Proceeds. In addition to the rights of the Secured Parties
specified in Section 3(d) with respect to payments of Accounts, it is agreed
that if an Event of Default shall occur and be continuing (a) upon demand by the
Collateral Agent all Proceeds received by the Company consisting of cash, checks
and other near-cash items shall be held by the Company in trust for the Secured
Parties, segregated from other funds of the Company, and shall, forthwith upon
receipt by the Company, be turned over to the Collateral Agent in the exact form
received by the Company (duly indorsed by the Company to the Collateral Agent,
if required), and (b) any and all such Proceeds received by the Collateral Agent
(whether from the Company or otherwise) may, in the sole discretion of the
Collateral Agent, be held by the Collateral Agent for the benefit of the Secured
Parties as collateral security for, and/or then or at any time thereafter may be
applied by the Collateral Agent against, the Obligations (whether matured or
unmatured), such application to be in such order as required by Section 9.2 of
the Credit Agreement. Any balance of such Proceeds remaining after the
Obligations shall have been paid in full, the Commitment shall have been
terminated and the Merchandise Letters of Credit shall have been cancelled or
shall have expired shall be paid over to the Company or to whomsoever may be
lawfully entitled to receive the same.
9. Remedies. If an Event of Default shall occur and be continuing,
the Collateral Agent, on behalf of the Secured Parties, may exercise, in
addition to all other rights and remedies granted to them in this Security
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations or the Guarantee Obligations, all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing, the Collateral Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required
<PAGE> 19
by law referred to below) to or upon the Company or any other Person (all and
each of which demands, defenses, advertisements and notices are hereby waived),
may in such circumstances forthwith collect, receive, appropriate and realize
upon the Collateral, or any part thereof, and/or may forthwith sell, lease,
assign, give option or options to purchase, or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, at any exchange,
broker's board or office of any Secured Party or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Any Secured Party shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Company, which right or equity is hereby waived or released.
The Company further agrees, at the Collateral Agent's request, to assemble the
Collateral and make it available to the Collateral Agent at places which the
Collateral Agent shall reasonably select, whether at the Company's premises or
elsewhere. The Collateral Agent shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Secured Parties hereunder,
including, without limitation, reasonable attorneys' fees and disbursements, to
the payment in whole or in part of the Obligations, in such order, subject to
the Inter-Facility Agreement, as required by Section 9.2 of the Credit
Agreement, and only after such application and after the payment by the
Collateral Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, need the
Collateral Agent account for the surplus, if any, to the Company. To the extent
permitted by applicable law, the Company waives all claims, damages and demands
it may acquire against any Secured Party arising out of the exercise by it of
any rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least 10 days before such sale or other disposition. The
Company shall remain liable for any deficiency if the proceeds of any sale or
other disposition of the Collateral are insufficient to pay the Obligations and
the fees and disbursements of any attorneys employed by any Secured Party to
collect such deficiency.
10. No Subrogation. Notwithstanding any payment or payments made by
the Company hereunder, or any setoff or application of funds of the Company by
any Bank, or the receipt of any amounts by any Secured Party with respect to any
of the Collateral, the Company shall not be entitled to be subrogated to any of
the rights of any Secured Party against Payless or against
<PAGE> 20
any other collateral security or guarantee or right of offset held by any
Secured Party for the payment of the Obligations or the Guarantee Obligations,
nor shall the Company seek any reimbursement from Payless or any other
Subsidiary of Payless in respect of payments made by the Company in connection
with the Collateral, or amounts realized by any Secured Party in connection with
the Collateral, until all amounts owing to the Secured Parties on account of the
Obligations and the Guarantee Obligations are paid in full and the Commitments
are terminated. If any amount shall be paid to the Company on account of such
subrogation rights at any time when all of the Obligations and the Guarantee
Obligations shall not have been paid in full, such amount shall be held by the
Company in trust for the Secured Parties, segregated from other funds of the
Company, and shall, forthwith upon receipt by the Company, be turned over to the
Collateral Agent in the exact form received by the Company (duly indorsed by the
Company to the Collateral Agent, if required) to be applied against the
Obligations, whether matured or unmatured, in such order as required by Section
9.2 of the Credit Agreement.
11. Amendments, etc. with Respect to the Obligations and the
Guarantee Obligations. The Company shall remain obligated hereunder, and the
Collateral shall remain subject to the Lien granted hereby, notwithstanding
that, without any reservation of rights against the Company, and without notice
to or further assent by the Company, any demand for payment of any of the
Obligations or the Guarantee Obligations made by any Secured Party may be
rescinded by such Secured Party, and any of the Obligations or the Guarantee
Obligations continued, and the Obligations or the Guarantee Obligations, or the
liability of Payless or any other Person upon or for any part thereof, or any
collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
any Secured Party, and the Credit Agreement, the Notes, the Inter-Facility
Agreement, the other Credit Documents and any other document executed and
delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Banks (or the Required Banks, as the
case may be) may deem advisable from time to time, and any guarantee, right of
offset or other collateral at any time held by any Secured Party for the payment
of the Obligations or the Guarantee Obligations may be sold, exchanged, waived,
surrendered or released. None of the Secured Parties shall have any obligation
to protect, secure, perfect or insure any other Lien at any time held by it as
security for the Obligations or the Guarantee Obligations or any property
subject thereto. The Company waives any and all notice of the creation,
renewal, extension or accrual of any of the Obligations or the Guarantee
Obligations and notice of or proof of reliance by any Secured Party upon this
Security Agreement; the Obligations and the Guarantee Obligations, and any of
them, shall conclusively be deemed to have been created, contracted or incurred
in reliance upon this Security Agreement; and all dealings between Payless
<PAGE> 21
and the Company on the one hand and the Secured Parties on the other, shall
likewise be conclusively presumed to have been had or consummated in reliance
upon this Security Agreement. The Company waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon
Payless or the Company with respect to the Obligations or the Guarantee
Obligations.
12. Limitation on Duties Regarding Preservation of Collateral. The
Collateral Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Collateral Agent deals with similar property for its own account. None of the
Secured Parties nor any of its respective directors, officers, employees or
agents shall be liable for failure to demand, collect or realize upon all or any
part of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Company or otherwise.
13. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
14. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Paragraph Headings. The paragraph headings used in this Security
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
16. No Waiver; Cumulative Remedies. None of the Secured Parties
shall by any act (except by a written instrument pursuant to Section 17 hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default or in
any breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of any Secured Party any right, power
or privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by any Secured Party of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which such
Secured Party would otherwise have on any future occasion. The rights and
remedies
<PAGE> 22
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any rights or remedies provided by law or at equity.
17. Waivers and Amendments; Successors and Assigns; Governing Law.
None of the terms or provisions of this Security Agreement may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Company and the Collateral Agent, provided that any provision of
this Security Agreement may be waived by the Collateral Agent in a written
letter or agreement executed by the Collateral Agent or by telex or facsimile
transmission from the Collateral Agent. This Security Agreement shall be
binding upon the successors and assigns of the Company and shall inure to the
benefit of the Secured Parties and their respective successors and assigns.
THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
18. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, telex, telecopy or
similar writing) and shall be given to such party at its address or telex or
telecopy number set forth on Schedule I to the Credit Agreement (or, in the case
of the Company, as set forth under its signature below or) or such other address
or telex or telecopy number as such party may hereafter specify for the purpose
by notice to the Collateral Agent and the Company. Each such notice, request or
other communication shall be given (i) by hand delivery, (ii) by telex, with
appropriate answerback to be received, (iii) by nationally recognized courier
service or (iv) by telecopy, receipt confirmed. Each such notice, request or
communication shall be effective (i) if delivered by hand or by nationally
recognized courier service, when delivered at the address set forth on such
signature pages and (ii) if given by telex or telecopy, when such telex or
telecopy is transmitted to the telex or telecopy number, as the case may be,
specified in this Section and the appropriate answerback or confirmation is
received.
19. Authority of Collateral Agent. The Company acknowledges that the
rights and responsibilities of the Collateral Agent under this Security
Agreement with respect to any action taken by the Collateral Agent or the
exercise or non-exercise by the Collateral Agent of any option, right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Security Agreement shall, as among the Secured Parties, be governed
by the Credit Agreement and the Inter-Facility Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Collateral Agent and the Company, the Collateral Agent shall be
conclusively presumed to be acting as agent for the Secured Parties with full
and valid authority so to act or refrain from acting, and the Company shall not
be under
<PAGE> 23
any obligation, or entitlement, to make any inquiry respecting such authority.
20. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. THE COMPANY AND
THE COLLATERAL AGENT HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION
WITH, OR ARISING OUT OF THIS SECURITY AGREEMENT AND THE COLLATERAL, OR THE
VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY
OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN THE COMPANY AND THE COLLATERAL
AGENT. THE COMPANY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK AND, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, OF ANY FEDERAL COURT LOCATED IN THE CITY OF NEW YORK IN
CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
SECURITY AGREEMENT OR ANY DOCUMENT OR INSTRUMENT DELIVERED PURSUANT TO THIS
SECURITY AGREEMENT OR THE COLLATERAL. THE COMPANY HEREBY WAIVES THE DEFENSES OF
FORUM NON CONVENIENS AND IMPROPER VENUE.
21. Privity. Notwithstanding anything contained herein, in the other
Credit Documents or elsewhere to the contrary, no Merchandise Letter of Credit
Bank shall be entitled to the benefits of this Security Agreement until such
time as such Merchandise Letter of Credit Bank has agreed in writing to be bound
by the terms hereof and of the Inter-Facility Agreement and to appoint the
Collateral Agent to act as collateral agent on its behalf.
<PAGE> 24
IN WITNESS WHEREOF, the Company and the Collateral Agent has caused
this Security Agreement to be duly executed and delivered as of the date first
above written.
SOMERVILLE LUMBER AND SUPPLY CO.,
INC.
By: s/Stephen A. Lightstone
----------------------------
Title: Treasurer
2300 Main
Kansas City, Missouri 64141
Telecopy number:
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY, as
Collateral Agent
By: s/Marybeth Ross
----------------------------
Title: Authorized Signatory
<PAGE> 1
Exhibit 4.8
STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT, dated as of November 18, 1994, between PAYLESS
CASHWAYS, INC., an Iowa corporation (the "Borrower"), and CANADIAN IMPERIAL BANK
OF COMMERCE, NEW YORK AGENCY ("CIBC"), as Collateral Agent (in such capacity,
together with any successor collateral agent, the "Collateral Agent") made for
the benefit of the Collateral Agent, CIBC, as Administrative Agent (in such
capacity, the "Administrative Agent"), The Bank of Nova Scotia, NationsBank of
Texas, N.A. and the Bank of America National Trust and Savings Association, as
Co-Agents (in such capacity, the "Co-Agents") and the banks and other financial
institutions (the "Banks") from time to time parties to the Credit Agreement,
dated as of November 18, 1994, among the Borrower, the Administrative Agent, the
Collateral Agent, the Co-Agents and the Banks (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement") and Commerce Bank,
N.A. and any other bank which shall hereafter issue commercial letters of credit
pursuant to the Merchandise Letter of Credit Facility (as hereinafter defined)
(the "Merchandise Letter of Credit Bank"). The Collateral Agent, the
Administrative Agent, the Co-Agents, the Banks and the Merchandise Letter of
Credit Bank are collectively referred to herein as the "Secured Parties."
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, the Secured Parties have
severally agreed to make extensions of credit to the Borrower upon the terms and
subject to the conditions set forth therein;
WHEREAS, the Borrower and the Merchandise Letter of Credit Bank are
parties to the Letter of Credit Issuance and Reimbursement Agreement dated as of
November 18, 1994, as amended (as such agreement may be amended, supplemented,
otherwise modified or replaced from time to time with the consent of the
Required Banks, the "Merchandise Letter of Credit Facility"), pursuant to which
the Merchandise Letter of Credit Bank makes available to the Borrower up to
$15,000,000 of commercial letters of credit at any one time outstanding (the
"Merchandise Letters of Credit");
WHEREAS, it is a condition precedent to the effectiveness of the
Credit Agreement that the Borrower shall have executed and delivered this Stock
Pledge Agreement to the Collateral Agent for the benefit of the Secured Parties;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and to induce the
Collateral Agent, the Administrative Agent, the Co-Agents and the Banks to enter
into the Credit Agreement and to induce the Banks to make their respective loans
and to issue and participate in the letters of credit (the "Bank Letters of
Credit") provided for under the Credit Agreement and to induce the Merchandise
Letter of Credit Bank to issue the Merchandise Letters of Credit provided for
under the Merchandise Letter of Credit Facility and for other good and valuable
consideration receipt of which is hereby acknowledged, the Borrower hereby
agrees with the Collateral Agent, for the benefit of the Secured Parties, as
follows:
SECTION 1. Definitions.
Terms defined in the Credit Agreement and not otherwise defined herein
have, as used herein, the respective meanings provided for therein. The
following additional terms, as used herein, have the following respective
meanings:
"Collateral" the Pledged Stock and all Proceeds thereof.
"Obligations" means the unpaid principal amount of, and interest on
(including, without limitation, interest accruing after the maturity of
the Loans and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-
filing or post-petition interest is allowed in such proceeding) the Notes
and all other obligations and liabilities of the Borrower to the Secured
Parties, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under,
out of, or in connection with, the Credit Agreement, the Notes, the Bank
Letters of Credit, the Merchandise Letter of Credit Facility, the
Merchandise Letters of Credit, this Pledge Agreement, the other Credit
Documents and any other document made, delivered or given in connection
therewith or herewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all fees and disbursements of counsel to any of the
Secured Parties that are required to be paid by the Borrower pursuant to
the terms of the Credit Agreement, the Merchandise Letter of Credit
Facility or the other Credit Documents) or otherwise.
Pledge Agreement" means this Stock Pledge Agreement.
<PAGE> 3
"Pledged Stock" means (i) the Subsidiary Shares and (ii) any other
capital stock of a Subsidiary of the Borrower required to be pledged to the
Collateral Agent pursuant to Section 3(b).
"Security Interests" means the security interests in the Collateral
granted hereunder securing the Obligations.
"Subsidiary Shares" means the shares of stock and certificates
evidencing the same more particularly described in Schedule A annexed
hereto.
Unless otherwise defined herein, or unless the context otherwise
requires, all terms used herein which are defined in the New York Uniform
Commercial Code as in effect on the date hereof shall have the meanings
therein stated.
SECTION 2. Representations and Warranties.
The Borrower represents and warrants as follows:
(i) The Borrower is, and at the time of delivery of the Collateral to
the Collateral Agent pursuant to Section 4 of this Pledge Agreement and at
all other times will be, the sole legal and beneficial owner of the
Collateral free and clear of any Liens other than the Security Interests;
(ii) The Borrower has full corporate power and authority and legal
right to pledge the Collateral pursuant to this Pledge Agreement;
(iii) The Collateral delivered at any time by the Borrower to the
Collateral Agent in accordance with this Pledge Agreement shall at all
times (a) constitute all of the Collateral owned by the Borrower at each
such time and (b) represent 100% of the issued and outstanding shares of
capital stock of the issuers thereof;
(iv) All of the Pledged Stock has been duly authorized and validly
issued, and is duly paid and non-assessable, and is subject to no options
to purchase or similar rights of any Person;
(v) The Borrower is not and will not become a party to or otherwise
be bound by any agreement, other than this Pledge Agreement and the Credit
Agreement, which restricts in any manner the rights of any present or
future holder of any of the Collateral with respect thereto;
(vi) Upon the delivery of certificates representing the Pledged Stock
to the Collateral Agent in accordance with Section 4 hereof, the Collateral
Agent (a) will have a valid and perfected first priority security interest
in the
<PAGE> 4
Collateral securing the payment of the Obligations and (b) will be a
"bona fide purchaser" (as such term is defined in Article 8 of the New York
Uniform Commercial Code) of the Collateral assuming that none of the
Secured Parties has notice of an adverse claim as to the Collateral;
(vii) No consent of any other party (including, without limitation,
stockholders or creditors of the Borrower) and no consent, authorization,
approval, or other action by, and no notice to or filing or registration
with, any Governmental Authority is required either (x) for the pledge by
the Borrower of the Collateral pursuant to this Pledge Agreement or for the
execution, delivery or performance of this Pledge Agreement by the
Borrower, (y) for the exercise by the Collateral Agent of the voting or
other rights provided for in this Pledge Agreement or the remedies in
respect of the Collateral pursuant to this Pledge Agreement, except as may
be required in connection with such disposition by laws affecting the
offering and sale of securities generally, or (z) for the perfection of the
Security Interests;
(viii) Neither the Borrower nor any of its Subsidiaries has performed or
will perform any acts which might prevent the Collateral Agent from
enforcing any of the terms and conditions of this Pledge Agreement or which
would limit the Collateral Agent in any such enforcement;
(ix) All material set forth herein relating to the Collateral is
accurate and complete in all material respects as of the date hereof;
(x) The pledge of the Collateral pursuant to this Pledge Agreement
does not violate Regulations G, T, U, or X of the Board of Governors of the
Federal Reserve System or any successor statutes or regulations thereof;
and
(xi) With respect to the Pledged Stock, the Borrower has obtained from
each issuer thereof and has delivered to the Collateral Agent an
Acknowledgement and Consent substantially in the form of Annex I, executed
by such issuer.
All of the representations and warranties made in this Section 2 shall
survive the execution and delivery thereof and the making and/or continuing of
the Loans or the issuance of the Merchandise Letters of Credit and shall be
deemed to be repeated and confirmed on the date of the making of each Loan or
the issuance of each Merchandise Letter of Credit and each time additional
securities or property become subject to the pledge hereunder.
<PAGE> 5
SECTION 3 The Security Interests. (a) The Borrower hereby delivers
to the Agent, for the ratable benefit of the Secured Parties, all the Pledged
Stock and hereby grants to Agent, for the ratable benefit of the Secured
Parties, a first security interest in the Collateral, as collateral security for
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations.
(b) The Borrower agrees that it will cause each issuer of Pledged
Stock not to issue any stock or other securities in addition to or in
substitution for the Pledged Stock issued by such issuer, except to the
Borrower. In the event that any issuer of the Pledged Stock at any time issues
any additional or substitute shares of capital stock of any class, the Borrower
will immediately pledge and deposit with the Collateral Agent certificates
representing all such shares as additional security for the Obligations and take
any and all action requested by the Collateral Agent to maintain the continuous
protection of the Security Interests. All such shares constitute Pledged Stock
and are subject to all provisions of this Pledge Agreement.
(c) The Security Interests are granted as collateral security only
and shall not subject any of the Secured Parties to, or transfer or in any way
affect or modify, any obligation or liability of the Borrower or any of its
Subsidiaries with respect to any of the Collateral or any transaction in
connection therewith.
SECTION 4 Delivery of Pledged Stock. (a) Contemporaneously with the
execution and delivery hereof, the Borrower is causing to be delivered to the
Collateral Agent the certificates representing the Pledged Stock. All
certificates or instruments representing or evidencing Pledged Stock delivered
to the Collateral Agent pursuant hereto shall be in suitable form for transfer
by delivery, and shall be accompanied by duly executed, undated, instruments of
transfer or assignment in blank, with signatures appropriately guaranteed, and
accompanied by any required transfer tax stamps, all in form and substance
satisfactory to the Collateral Agent. In addition, the Collateral Agent shall
have the right at any time to exchange the certificates representing or
evidencing the Collateral for certificates of smaller or larger denominations.
(b) If an issuer of Pledged Stock is incorporated in a jurisdiction
which does not permit the use of certificates to evidence equity ownership then
the Borrower shall, to the extent permitted by applicable law, record such
pledge on the stock register of the issuer, execute any customary stock pledge
forms or other documents necessary to complete the pledge and give the
Collateral Agent the right to transfer the Pledged Stock under the terms hereof
and provide to the Collateral Agent an opinion
<PAGE> 6
of counsel, in form and substance satisfactory to it, confirming such pledge.
SECTION 5. Filing; Further Assurances.
The Borrower agrees that at any time and from time to time, at
its expense and in such manner and form as the Collateral Agent may require, the
Borrower will promptly execute, deliver, file and record any financing
statement, specific assignment, notification, stock transfer form or other paper
and take any other action that may be necessary or desirable, or that the
Collateral Agent may request, in order to create, preserve, perfect or validate
any Security Interest or to enable the Collateral Agent to exercise and enforce
its rights hereunder with respect to any of the Collateral. To the extent
permitted by applicable law, the Borrower hereby authorizes the Collateral Agent
to execute and file, in the name of the Borrower or otherwise, Uniform
Commercial Code financing statements (which may be carbon, photographic,
photostatic or other reproductions of this Pledge Agreement or of a financing
statement relating to this Pledge Agreement) which the Collateral Agent in its
sole discretion may deem necessary or appropriate to further perfect the
Security Interests; provided the Collateral Agent delivers to the Borrower a
copy of each financing statement so filed as promptly as possible after the
filing thereof.
SECTION 6. Record Ownership of Pledged Stock.
The Collateral Agent may at any time or from time to time, in
its sole discretion, cause any or all of the Pledged Stock to be transferred of
record into and registered in the name of the Collateral Agent or its nominee.
The Borrower will promptly give to the Collateral Agent copies of any notices or
other communications received by it with respect to Pledged Stock registered in
the name of the Borrower, and the Collateral Agent will promptly give to the
Borrower copies of any notices and communications received by the Collateral
Agent with respect to Pledged Stock registered in the name of the Collateral
Agent or its nominee.
SECTION 7. Voting Rights; Dividends. (a) Unless an Event of Default
shall have occurred and be continuing:
(i) The Borrower shall have the right, from time to time, to vote and
to give consents, ratifications and waivers with respect to the Collateral
for any purpose not inconsistent with the terms of this Pledge Agreement or
the Credit Agreement;
(ii) The Borrower shall be entitled to receive and retain, and to
utilize free and clear of the Lien of this
<PAGE> 7
Pledge Agreement, any and all dividends and distributions in respect of the
Collateral; provided, however, that, whether or not there shall exist an
Event of Default, any and all dividends and other distributions in the form
of securities or notes and to the extent not included in the foregoing, all
stock dividends, stock issued pursuant to a stock split involving the
Collateral, distributions of capital with respect to the Collateral and all
payments and distributions of any kind or character made upon or with
respect to the Collateral pursuant to any merger, consolidation,
recapitalization, reclassification, dissolution, liquidation, bankruptcy or
reorganization of any issuer thereof, shall be, and shall be forthwith
delivered to the Collateral Agent to hold as, Collateral and shall, if
received by the Borrower, be received in trust for the benefit of the
Collateral Agent, be segregated from the other property or funds of the
Borrower, and be forthwith delivered to the Collateral Agent as Collateral
in the same form as so received (with any necessary endorsement).
(iii) In order to permit the Borrower to exercise the voting and
other rights which it is entitled to exercise pursuant to Section 7(a)(i)
above and to receive the dividends and distributions which it is authorized
to receive and retain pursuant to Section 7(a)(ii) above, the Collateral
Agent shall, upon receiving a written request from the Borrower accompanied
by a certificate signed by the chief financial officer of the Borrower
stating that no Event of Default has occurred and is continuing, deliver to
the Borrower or as specified in such request (unless the Collateral Agent
has received written notice from a Bank or the Merchandise Letter of Credit
Bank that an Event of Default has occurred and is continuing) such proxies,
powers of attorney, consents, dividend payment orders, ratifications and
waivers in respect of any of the Collateral which is registered in the name
of the Collateral Agent or its nominee as shall be (x) specified in such
request, (y) consistent with the limitations set forth in Section 7(a)(i)
and (z) in form and substance reasonably satisfactory to the Collateral
Agent.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) Upon written notice from the Collateral Agent to the Borrower,
all rights of the Borrower to exercise the voting and other consensual
rights which it would otherwise be entitled to exercise pursuant to Section
7(a)(i) above shall cease, and all such rights shall thereupon become
vested in the Collateral Agent which shall thereupon have the sole right to
exercise such voting and other consensual rights during the continuance of
such Event of Default.
<PAGE> 8
(ii) All rights of the Borrower to receive the dividends and
distributions which it would otherwise be authorized to receive and retain
pursuant to Section 7(a)(ii) above shall cease and all such rights shall
thereupon become vested in the Collateral Agent who shall thereupon have
the sole right to receive and hold as Collateral such dividends and
distributions during the continuance of such Event of Default.
(c) In order to permit the Collateral Agent to exercise the voting
and other consensual rights which it may be entitled to exercise pursuant to
Section 7(b)(i) above and to receive all dividends and distributions which it
may be entitled to receive and retain pursuant to Section 7(a)(ii) and 7(b)(ii)
above, the Borrower shall, if necessary, upon written notice from the Collateral
Agent, from time to time execute and deliver to the Collateral Agent appropriate
proxies, powers of attorney, consents, dividend payment orders, ratifications,
waivers and other instruments as the Collateral Agent may reasonably request.
(d) All dividends and distributions which are received by the
Borrower contrary to the provisions of Section 7(b)(ii) above shall be received
in trust for the benefit of the Collateral Agent, shall be segregated from other
funds of the Borrower and shall be forthwith paid over to the Collateral Agent
as Collateral in the same form as so received (with any necessary endorsement).
SECTION 8. Transfers and Other Liens.
The Borrower agrees that it will not, except as otherwise expressly
permitted by the Credit Agreement, (i) sell or otherwise dispose of, or grant
any option or warrant with respect to, any of the Collateral, (ii) create or
permit to exist any Lien upon or with respect to any of the Collateral, except
for the Security Interests, or (iii) permit any issuer of Pledged Stock to merge
or consolidate.
SECTION 9. General Authority.
The Borrower hereby irrevocably appoints the Collateral Agent its true
and lawful attorney-in-fact, with full power of substitution, in the name of the
Borrower, each of the Secured Parties or otherwise, for the sole use and benefit
of the Secured Parties, but at the expense of the Borrower, to the extent
permitted by law to exercise, at any time and from time to time while an Event
of Default has occurred and is continuing, all or any of the following powers
with respect to all or any of the Collateral:
<PAGE> 9
(i) to demand, sue for, collect, receive and give acquittance for any
and all monies due or to become due upon or by virtue thereof;
(ii) to settle, compromise, compound, prosecute or defend any action
or proceeding with respect thereto;
(iii) to sell, transfer, assign or otherwise deal in or with the
proceeds or avails thereof, as fully and effectually as if the Collateral
Agent were the absolute owner thereof;
(iv) to extend the time of payment of any or all thereof and to make
any allowance and other adjustments with reference thereto; and
(v) to take any other action or resort to any other remedy under the
Credit Agreement, this Pledge Agreement or applicable law.
SECTION 10. Collateral Agent May Perform.
If the Borrower fails to perform any agreement contained herein after
receipt of a written request to do so from the Collateral Agent, the Collateral
Agent may itself perform, or cause performance of, such agreement, and the
expenses of the Collateral Agent, including the fees and expenses of its
counsel, incurred in connection therewith shall be payable by the Borrower under
Section 12 hereof.
SECTION 11. Remedies upon Event of Default. (a) If any Event of
Default shall have occurred and be continuing:
(i) The Collateral Agent may from time to time exercise on behalf of
the Secured Parties all the rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party
under the Uniform Commercial Code (whether or not in effect in the
jurisdiction where such rights are exercised) and, in addition, the
Collateral Agent may, without being required to give any notice, except as
herein provided or as may be required by mandatory provisions of law, (i)
apply the cash, if any, then held by it as Collateral as specified in
Section 14 and (ii) if there shall be no such cash or if such cash shall be
insufficient to pay all the Obligations in full, sell the Collateral or any
part thereof at public or private sale, at any broker's board, on any
securities exchange, or at any of the Collateral Agent's offices, for cash,
upon credit or for future delivery, and at such price or prices as the
Collateral Agent may deem satisfactory irrespective of the impact of any
such sales on the market price of the Collateral. Any of the Secured
Parties may be
<PAGE> 10
the purchaser of any or all of the Collateral so sold at any public sale
(or, if the Collateral is of a type customarily sold in a recognized market
or is of a type which is the subject of widely distributed standard price
quotations, at any private sale), and shall be entitled, for the purpose of
bidding and making settlement or payment of the purchase price for all or
any portion of the Collateral sold at such sale, to use and apply any of
the Obligations owed to such Person as a credit on account of the purchase
price of any Collateral payable by such Person at such sale. Each
purchaser at any such sale shall acquire the property sold absolutely free
from any claim or right on the part of the Borrower, and the Borrower
hereby waives (to the full extent permitted by law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in
the future have under any rule of law or statute now existing or hereafter
enacted. The Borrower agrees that, to the extent notice of sale shall be
required by law, at least ten days' notice to the Borrower of the time and
place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification within the meaning of Section
9-504(3) of the New York Uniform Commercial Code.
(ii) The Collateral Agent is authorized, in connection with any such
sale, if it deems it advisable so to do, (i) to restrict the prospective
bidders on or purchasers of any of the Collateral to a limited number of
sophisticated investors who will represent and agree that they are
purchasing for their own account for investment and not with a view to the
distribution or sale of any of such Collateral, (ii) to cause to be placed
on certificates for any or all of the Collateral or on any other securities
pledged hereunder a legend to the effect that such security has not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), if such securities are not so registered at the contemplated time of
any such sale, and may not be disposed of in violation of the provisions of
said Act, and (iii) to impose such other limitations or conditions in
connection with any such sale as the Collateral Agent deems necessary or
advisable in order to comply with said Act or any other law. The Borrower
covenants and agrees that it will execute and deliver such documents and
take such other action as the Collateral Agent deems necessary or advisable
in order that any such sale may be made in compliance with law. The
Borrower acknowledges that any private sale of the Collateral may be at
prices and on terms less favorable to the Collateral Agent than those
obtainable through a public sale (including, without limitation, a public
offering made pursuant to a registration statement under the Securities
Act), and, notwithstanding such circumstances, waives any claims against
the Secured Parties by reason of the foregoing and agrees that any such
private sale shall not, solely by virtue of being a private sale, be deemed
to have been made
<PAGE> 11
in a commercially unreasonable manner and that the Collateral Agent shall
have no obligation to engage in public sales and no obligation to delay the
sale of any Collateral for the period of time necessary to permit the
issuer thereof to register it for a form of public sale requiring
registration under the Securities Act or under applicable state securities
laws, even if such issuer would agree to do so.
(iii) The notice (if any) of a sale of any Collateral required by this
Section 11 shall (1) in case of a public sale, state the time and place
fixed for such sale, (2) in case of sale at a broker's board or on a
securities exchange, state the board or exchange at which such sale is to
be made and the day on which the Collateral, or the portion thereof so
being sold, will first be offered for sale at such board or exchange, and
(3) in the case of a private sale, state the day after which such sale may
be consummated. Any such public sale shall be held at such time or times
within ordinary business hours and at such place or places as the
Collateral Agent may fix in the notice of such sale. At any such sale the
Collateral may be sold in one lot as an entirety or in separate parcels, as
the Collateral Agent may determine. The Collateral Agent shall not be
obligated to make any such sale pursuant to any such notice. The
Collateral Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale, and such sale may be
made at any time or place to which the same may be so adjourned. In case
of any sale of all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by the Collateral Agent
until the selling price is paid by the purchaser thereof, but none of the
Secured Parties shall incur any liability in case of the failure of such
purchaser to take up and pay for the Collateral so sold and, in case of any
such failure, such Collateral may again be sold upon like notice. The
Collateral Agent, instead of exercising the power of sale herein conferred
upon it, may proceed by a suit or suits at law or in equity to foreclose
the Security Interests and sell the Collateral, or any portion thereof,
under a judgment or decree of a court or courts of competent jurisdiction.
(b) If the Collateral Agent, in its reasonable discretion, determines
that it is necessary or advisable, in connection with the exercise by the
Collateral Agent of its remedies under this Section 11, to effect a public
registration of the Collateral pursuant to the Securities Act (or any similar
statute then in effect), the Borrower shall, as expeditiously as possible:
<PAGE> 12
(i) cause the issuer thereof to prepare and file with the Securities
and Exchange Commission (the "Commission") a registration statement with
respect to the Collateral and use its best efforts to cause such
registration statement to become and remain effective;
(ii) cause the issuer thereof to prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of the
Collateral covered by such registration statement whenever the Collateral
Agent shall desire to sell or otherwise dispose of the Collateral;
(iii) furnish or cause the issuer thereof to furnish to the
Collateral Agent such numbers of copies of a summary prospectus or other
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as the
Collateral Agent may reasonably request in order to facilitate the public
sale or other disposition of the Collateral by the Collateral Agent;
(iv) cause the issuer thereof to register or qualify the Collateral
covered by such registration statement under such other securities or blue
sky laws of such jurisdictions within the United States as the Collateral
Agent shall request, and do such other reasonable acts and things as may be
required of it to enable the Collateral Agent to consummate the public sale
or other disposition in such jurisdictions of the Collateral by the
Collateral Agent;
(v) furnish or cause the issuer thereof to furnish, at the request of
the Collateral Agent, on the date that the Collateral is delivered to the
underwriters for sale pursuant to such registration or, if the Collateral
is not being sold through underwriters, on the date that the registration
statement with respect to such Collateral becomes effective, (A) an
opinion, dated such date, of the independent counsel representing the
issuer of the applicable Pledged Stock for the purposes of such
registration, addressed to the underwriters, if any, and if the Collateral
is not being sold through underwriters, then to the Collateral Agent,
stating that such registration statement has become effective under the
Securities Act and that (1) to the best knowledge of such counsel, no stop
order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (2) the registration statement, the
related prospectus, and each amendment or supplement thereto comply as to
form in all material respects with the requirements of the Securities
<PAGE> 13
Act and the applicable rules and regulations of the Commission thereunder
(except that such counsel need express no opinion as to financial
statements contained therein), (3) such counsel has no reason to believe
that either the registration statement or the prospectus, or any amendment
or supplement thereto, contains any untrue statement of a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (4) the descriptions in the registration statement or the
prospectus, or any amendment or supplement thereto, of all legal matters
and contracts and other legal documents or instruments are accurate and
fairly present the information required to be shown, and (5) such counsel
does not know of any legal or governmental proceedings, pending or
contemplated, required to be described in the registration statement or
prospectus, or any amendment or supplement thereto, which are not described
as required, nor of any contracts or documents or instruments of a
character required to be described in the registration statement or
prospectus, or any amendment or supplement thereto, or to be filed as
exhibits to the registration statement which are not described and filed or
incorporated by reference as required; and (B) a letter, dated such date,
from the independent certified public accountants of the issuer of the
applicable Pledged Stock addressed to the underwriters, if any, and if the
Pledged Stock are not being sold through underwriters, then to the
Collateral Agent, stating that they are independent certified public
accountants within the meaning of the Securities Act and that, in the
opinion of such accountants, the financial statements and other financial
data of such issuer included in the registration statement or the
prospectus, or any amendment or supplement thereto, comply as to form in
all respects with the applicable accounting requirements of the Securities
Act. Such opinion of counsel shall additionally cover such other legal
matters with respect to the registration in respect of which such opinion
is being given as the Collateral Agent may reasonably request. Such letter
from the independent certified public accountants shall additionally cover
such other financial matters (including information as to the period ending
not more than five business days prior to the date of such letter) with
respect to the registration in respect of which such letter is being given
as the Collateral Agent may reasonably request; and
(vi) otherwise use its best efforts to comply with or cause the issuer
thereof to comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as
reasonably practicable, but not later than 18 months after the effective
date of the registration statement, an earnings statement covering the
period of at least 12 months beginning with the first full month after the
effective date of such registration
<PAGE> 14
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act.
(c) All expenses incurred in complying with Section 11(b), including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the issuer of the Pledged Stock, the reasonable
fees and expenses of counsel for the Collateral Agent and expenses of complying
with the securities or blue sky laws of any jurisdictions, shall be paid by the
Borrower.
(d) If the Collateral Agent determines to exercise its right to sell
any or all of the Collateral, upon written request, the Borrower shall and shall
cause each issuer of any Pledged Stock to be sold hereunder from time to time to
furnish to the Collateral Agent all such information as the Collateral Agent may
request in order to determine the number of shares and other instruments
included in the Collateral which may be sold by the Collateral Agent as exempt
transactions under the Securities Act and the rules of the Commission
thereunder, as the same are from time to time in effect.
(e) The Borrower agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Stock pursuant to this Section 11 valid and
binding and in compliance with any and all other applicable requirements of law.
SECTION 12. Expenses. The Borrower agrees that it will forthwith
upon demand pay to the Collateral Agent:
(i) the amount of any taxes which the Collateral Agent may have been
required to pay by reason of the Security Interests or to free any of the
Collateral from any Lien thereon, and
(ii) the amount of any and all out-of-pocket expenses, including the
fees and disbursements of counsel and of any other experts, which any of
the Secured Parties may incur in connection with (w) the administration or
enforcement of this Pledge Agreement, including such expenses as are
incurred to preserve the value of the Collateral and the validity,
perfection, rank and value of any Security Interest, (x) the collection,
sale or other disposition of any of the Collateral, (y) the exercise by the
Collateral Agent of any of the rights conferred upon it hereunder or (z)
any Default or Event of Default.
Any such amount not paid on demand shall bear interest at a rate equal to the
sum of 2% plus the CIBC Alternate Base Rate in effect at such time.
<PAGE> 15
SECTION 13. Limitation on Duty of Collateral Agent in Respect of
Collateral. Beyond the exercise of reasonable care in the custody thereof, the
Collateral Agent shall have no duty as to any Collateral in its possession or
control or in the possession or control of any agent or bailee or any income
thereon or as to the preservation of rights against prior parties or any other
rights pertaining thereto. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which it accords its own property, and shall not be liable or responsible
for any loss or damage to any of the Collateral, or for any diminution in the
value thereof, by reason of the act or omission of any agent or bailee selected
by the Collateral Agent in good faith. It is understood that none of the
Secured Parties shall have responsibility for (i) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Collateral, whether or not such Secured Party has or is
deemed to have knowledge of such matters, or (ii) taking any necessary steps
(other than steps taken in accordance with the standard of care set forth above
to maintain possession of the Collateral) to preserve rights against any Person
with respect to any Collateral.
SECTION 14. Application of Proceeds. Unless otherwise agreed to in
writing by the Banks, upon the occurrence and during the continuance of an Event
of Default, the proceeds of any sale of, or other realization upon, all or any
part of the Collateral and any cash held shall be applied against the
Obligations by the Collateral Agent, subject to the Inter-Facility Agreement, in
accordance with Section 9.2 of the Credit Agreement.
SECTION 15. Concerning the Collateral Agent. The provisions of
Section 10 of the Credit Agreement shall inure to the benefit of the Collateral
Agent in respect of this Pledge Agreement and shall be binding upon the parties
to the Credit Agreement in such respect. In furtherance and not in derogation
of the rights, privileges and immunities of the Collateral Agent therein set
forth:
(a) The Collateral Agent is authorized to take all such action as is
provided to be taken by it as Collateral Agent hereunder and all other
action reasonable incidental thereto. As to any matters not expressly
provided for herein (including, without limitation, the timing and methods
of realization upon the Collateral) the Collateral Agent shall act or
refrain from acting in accordance with written instructions from the
Required Banks or, in the absence of such instructions, in accordance with
its discretion.
<PAGE> 16
(b) The Collateral Agent shall not be responsible for the existence,
genuineness or value of any of the Collateral or for the validity,
perfection, priority or enforceability of the Security Interests in any of
the Collateral, whether impaired by operation of law or by reason of any
action or omission to act on its part hereunder. The Collateral Agent
shall have no duty to ascertain or inquire as to the performance or
observance of any of the terms of this Pledge Agreement by the Borrower.
SECTION 16. Appointment of Co-Collateral Agents. At any time or
times, in order to comply with any legal requirement in any jurisdiction, the
Collateral Agent may appoint another bank or trust company or one or more other
persons, either to act as co-collateral agent or co-collateral agents, jointly
with the Collateral Agent, or to act as separate collateral agent or agents on
behalf of the Secured Parties with such power and authority as may be necessary
for the effectual operation of the provisions hereof and may be specified in the
instrument of appointment (which may, in the discretion of the Collateral Agent,
include provisions for the protection of such co-collateral agent or separate
collateral agent similar to the provisions of Section 15).
SECTION 17. Termination of Security Interests; Release of Collateral.
Upon the repayment in full in cash of all the Obligations, the termination of
the Commitments under the Credit Agreement and the termination, cancellation or
expiration of all Merchandise Letters of Credit issued under or in connection
with the Credit Agreement or the Merchandise Letter of Credit Facility, the
Security Interests shall terminate, and the Collateral Agent shall, upon the
request and at the expense of the Borrower, forthwith assign, transfer, and
deliver, against receipt and without recourse to any of the Secured Parties and
without representation or warranty on the part of the Secured Parties, such of
the Collateral as shall not have been sold or otherwise applied pursuant to the
terms hereof to or on the order of the Borrower. At any time and from time to
time prior to such termination of the Security Interests, the Collateral Agent
may release any of the Collateral with the prior written consent of the Banks
and the Merchandise Letter of Credit Bank except that if the Borrower shall sell
any Collateral permitted to be sold under the Credit Agreement, the Collateral
Agent may release such sold Collateral without obtaining the consent of any Bank
or the Merchandise Letter of Credit Bank. Upon any such release of Collateral,
the Collateral Agent will, at the expense of the Borrower, execute and deliver
to the Borrower such documents as the Borrower shall reasonably request to
evidence the release of such Collateral, as the case may be.
<PAGE> 17
SECTION 18. Notices. All notices, demands, instructions, and other
communications and distributions hereunder shall be given in accordance with
Section 11.1 of the Credit Agreement. For the purposes hereof, the addresses of
the Collateral Agent, the Administrative Agent, the Co-Agents and the Banks
shall be the addresses in effect from time to time under the Credit Agreement.
SECTION 19. Waivers, Non-Exclusive Remedies. (a) No failure on the
part of the Collateral Agent to exercise, and no delay in exercising, and no
course of dealing with respect to, any right, power or remedy under this Pledge
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise by the Collateral Agent of any right under this Pledge Agreement or any
other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. The rights in this Pledge
Agreement and the other Credit Documents are cumulative and are not exclusive of
any other remedies provided by law.
(b) In the event the Collateral Agent shall have instituted any
proceeding to enforce any right, power or remedy under this instrument by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Collateral Agent, then and in every such case the Borrower, the
Collateral Agent and each holder of any of the Obligations shall, to the extent
permitted by applicable law, be restored to their respective former positions
and rights hereunder with respect to the Collateral, and all rights, remedies
and powers of the Collateral Agent shall continue as if no such proceeding had
been instituted.
SECTION 20. Indemnification. The Borrower hereby agrees to indemnify
each Secured Party for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against such Secured Party in any way relating to or arising out of this Pledge
Agreement, the Collateral or the enforcement of any of the terms hereof or
otherwise arising or relating in any manner to the pledges contemplated
hereunder; provided, however, that the Borrower shall not be liable for any of
the foregoing to the extent they arise solely from the gross negligence or
willful misconduct of the party seeking indemnification.
SECTION 21. Amendments. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only in
writing signed by the Borrower, and the Collateral Agent. Any amendment,
modification or
<PAGE> 18
supplement of or to any provision of this Pledge Agreement, any termination or
waiver of any provision of this Pledge Agreement and any consent to any
departure by the Borrower from the terms of any provision of this Pledge
Agreement shall be effective only in the specific instance and for the specific
purpose for which made or given. No notice to or demand upon the Borrower in
any instance hereunder shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances.
SECTION 22. NEW YORK LAW. THIS PLEDGE AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK.
SECTION 23. Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Secured Parties in
order to carry out the intentions of the parties hereto as nearly as may be
possible; and (ii) the invalidity or unenforceability of any provision hereof in
any jurisdiction shall not affect the validity or enforceability of such
provision in any other jurisdiction.
SECTION 24. Waiver of Jury Trial; Consent to Jurisdiction. The
Borrower and the Collateral Agent hereby waive, to the extent permitted by
applicable law, trial by jury in any litigation in any court with respect to, in
connection with, or arising out of this Pledge Agreement and the Collateral, or
the validity, protection, interpretation, collection or enforcement thereof, or
any other claim or dispute howsoever arising, between the Borrower, on the one
hand, and the Collateral Agent on the other hand. The Borrower hereby
irrevocably consents to the nonexclusive jurisdiction of the courts of the State
of New York and, to the extent permitted by applicable law, of any federal court
located in the City of New York in connection with any action or proceeding
arising out of or relating to this Pledge Agreement or the Collateral. The
Borrower hereby waives the defenses of forum non conveniens and improper venue.
SECTION 25. Security Interest Absolute. All rights of the Collateral
Agent and Security Interests hereunder, and all obligations of the Borrower
hereunder, shall be absolute and unconditional irrespective of:
(i) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Credit Agreement, the
Merchandise Letter
<PAGE> 19
of Credit Facility, any other Credit Document or any other agreement or
instrument relating thereto; or
(ii) any exchange, release or non-perfection of any other collateral,
or any release or amendment or waiver of or consent to any departure from
any guarantee, for all or any of the Obligations.
SECTION 26. Irrevocable Authorization and Instruction to issuers of
Pledged Stock. The Borrower hereby authorizes and instructs each issuer of the
Pledged Stock to comply with any instruction received by it from the Collateral
Agent in writing that (a) states that an Event of Default has occurred and (b)
is otherwise in accordance with the terms of this Pledge Agreement, without any
other or further instructions from the Borrower, and the Borrower agrees that
each such issuer shall be fully protected in so complying.
SECTION 27. Headings. Article and Section headings used in this
Pledge Agreement are for convenience of reference only and shall not affect the
construction of this Agreement.
SECTION 28. Execution in Counterparts. This Pledge Agreement may be
executed in any number of counterparts, each of which counterparts, when so
executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute one and the same Pledge
Agreement.
SECTION 29. Successors and Assigns. This Pledge Agreement shall
create a continuing security interest in the Collateral and shall (i) remain in
full force and effect until payment in full in cash of all Obligations and
termination of the Commitments and the cancellation, termination or expiration
of all Merchandise Letters of Credit issued under or in connection with the
Credit Agreement and the Merchandise Letter of Credit Facility, (ii) be binding
upon the Borrower, its successors and assigns, and (iii) inure, together with
the rights and remedies of the Collateral Agent hereunder, to the benefit of the
Collateral Agent on behalf of the Secured Parties and their respective
successors, transferees and assigns; no other persons (including without
limitation, any other creditor of the Borrower) shall have any interest herein
or any right or benefit with respect hereto.
SECTION 30. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
<PAGE> 20
SECTION 31. Authority of Collateral Agent. The Borrower acknowledges
that the rights and responsibilities of the Collateral Agent under this Pledge
Agreement with respect to any action taken by the Collateral Agent or the
exercise or non-exercise by the Collateral Agent of any option, right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Pledge Agreement shall, as among the Secured Parties, be governed by
the Credit Agreement and the Inter-Facility Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Collateral Agent and the Borrower, the Collateral Agent shall be
conclusively presumed to be acting as agent for the Secured Parties with full
and valid authority so to act or refrain from acting, and the Borrower shall not
be under any obligation, or entitlement, to make any inquiry respecting such
authority.
SECTION 32. Privity. Notwithstanding anything contained herein, in
the other Credit Documents or elsewhere to the contrary, no Merchandise Letter
of Credit Bank shall be entitled to the benefits of this Pledge Agreement until
such time as such Merchandise Letter of Credit Bank has agreed in writing to be
bound by the terms hereof and of the Inter-Facility Agreement and to appoint the
Collateral Agent to act as collateral agent on its behalf.
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
PAYLESS CASHWAYS, INC.
By: s/Greg Drown
--------------------------
Title: Asst. Treasurer
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
as Collateral Agent
By: s/Marybeth Ross
-------------------------
Title: Authorized Signatory
<PAGE> 1
Exhibit 4.9
INTER-FACILITY AGREEMENT
INTER-FACILITY AGREEMENT, dated as of November 18, 1994, among:
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY ("CIBC"), as Administrative
Agent (in such capacity, together with any successor agent, the "Administrative
Agent") and as Collateral Agent (in such capacity, together with any successor
agent, the "Collateral Agent"); THE BANK OF NOVA SCOTIA, NATIONSBANK OF TEXAS,
N.A., and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Co-Agents
(in such capacity, together with any successor agents, the "Co-Agents");
COMMERCE BANK, N.A., (together with its successors and assigns and any other
bank which shall issue documentary letters of credit under a Merchandise Letter
of Credit Facility (as hereinafter defined), the "Merchandise Letter of Credit
Bank"); PAYLESS CASHWAYS, INC. (the "Borrower"); and SOMERVILLE LUMBER AND
SUPPLY CO., INC. ("Somerville").
W I T N E S S E T H :
WHEREAS, the Borrower, the banks and other financial institutions from
time to time parties to the Credit Agreement hereinafter referenced (the
"Banks"; which term shall, for the purposes hereof, be deemed to include the
Letter of Credit Bank under the Credit Agreement), the Administrative Agent, the
Collateral Agent and the Co-Agents are parties to the Credit Agreement, dated as
of November 18, 1994 (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"; capitalized terms used but not defined herein
being used herein as therein defined), pursuant to which the Banks have agreed
to make Loans to, and to issue and/or participate in Letters of Credit (the
"Bank Letters of Credit") for the account of, the Borrower;
WHEREAS, the Borrower and the Merchandise Letter of Credit Bank are
parties to the Letter of Credit Issuance and Reimbursement Agreement dated as of
November 18, 1994 (as amended through the date hereof and as the same may be
further amended, supplemented, otherwise modified or replaced from time to time
with the consent of the Required Banks, the "Merchandise Letter of Credit
Facility"), pursuant to which the Merchandise Letter of Credit Bank makes
available to the Borrower up to $15,000,000 of commercial letters of credit at
any one time outstanding (the "Merchandise Letters of Credit"); and
WHEREAS, it is a condition precedent to the effectiveness of the
Credit Agreement that each of the parties hereto shall have executed and
delivered to the Administrative Agent this Inter-Facility Agreement;
<PAGE> 2
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree, so long
as either the Credit Agreement or the Merchandise Letter of Credit Facility
(together, the "Agreements") shall be in effect and any Bank Obligations or
Obligations (as defined in the Security Agreement) arising under the Merchandise
Letters of Credit Agreement (any such latter Obligations, the "Merchandise
Letter of Credit Obligations") shall be outstanding and notwithstanding anything
contained to the contrary in any of the Agreements or any documents executed in
connection therewith, as follows:
1. A. After the occurrence of an Event of Default and acceleration of
the Bank Obligations (herein referred to as a "Collateral Realization Event"),
the proceeds of the Collateral shall be applied by the Collateral Agent to the
payment of the Obligations in the following order unless a court of competent
jurisdiction shall otherwise direct:
(i) FIRST, to the pro rata payment of all costs and expenses of the
Collateral Agent, the Administrative Agent, the Co-Agents, the Banks and
the Merchandise Letter of Credit Bank incurred in connection with the
preservation, collection and enforcement of the Obligations, or of the
security interests granted to the Collateral Agent pursuant to the Security
Documents, including, without limitation, any amounts advanced by the
Collateral Agent, the Administrative Agent, the Co-Agents, the Banks or the
Merchandise Letter of Credit Bank to protect, preserve or liquidate the
Collateral;
(ii) SECOND, to payment of that portion of the Obligations
constituting accrued and unpaid interest and fees, ratably amongst the
Collateral Agent, the Administrative Agent, the Co-Agents, the Banks and
the Merchandise Letter of Credit Bank in accordance with the proportion
which the accrued interest and fees constituting the Obligations owing to
such Person at such time bears to the aggregate amount of accrued interest
and fees constituting the Obligations owing to all such Persons at such
time, until such interest and fees shall be paid in full;
(iii) THIRD, to payment of the principal of the Obligations (which
shall include the undrawn amount of the Bank Letters of Credit and any
Merchandise Letters of Credit issued not in violation of the terms of the
Credit Agreement), ratably amongst the Banks and the Merchandise Letter of
Credit Bank in accordance with the proportion which the principal amount of
the Obligations (which shall include the undrawn amount of all such
outstanding letters of credit) owing to each such Bank or the Merchandise
Letter of Credit Bank bears to the aggregate principal amount of the
Obligations owing to all of the Banks and the
<PAGE> 3
Merchandise Letter of Credit Bank until such principal of the Obligations
shall be paid in full;
(iv) FOURTH, to the payment of all other Obligations, ratably amongst
the Banks and the Merchandise Letter of Credit Bank in accordance with the
proportion which the amount of such other Obligations owing to each such
Bank or the Merchandise Letter of Credit Bank bears to the aggregate amount
of such other Obligations owing to all of the Banks and the Merchandise
Letter of Credit Bank until such other Obligations shall be paid in full;
and
(v) FIFTH, the balance, if any, after all of the Obligations have
been satisfied, shall be returned to the Borrower or paid over to such
other Person as may be required by law.
B. Notwithstanding the above, the Merchandise Letter of Credit Bank
shall have no rights to receive or retain any amount allocated to it as provided
above unless
(i) with respect to all collateral having an aggregate value in
excess of $100,000 securing the Merchandise Letter of Credit Obligations,
other than the Collateral, the Merchandise Letter of Credit Bank
(a) has presented any bills of lading, dock receipts,
warehouse receipts or other documents of title in the
possession of the Merchandise Letter of Credit Bank
respecting such collateral at the port or ports of entry for such
collateral; and
(b) has used its best efforts to sell the collateral,
if any, obtained from such presentation in a commercially reasonable
manner; and
(ii) the Merchandise Letter of Credit Bank shall have provided the
Collateral Agent with either
(a) an affidavit from an officer of the Merchandise Letter of
Credit Bank stating (1) whether it had any bills of lading, dock
receipts, warehouse receipts or other documents of title in its
possession regarding such collateral, (2) that the same have been
presented at the port or ports of entry for such collateral, (3) the
collateral, if any, obtained upon such presentation, and (4) that such
collateral was sold in a commercially reasonable manner or specifying
the Merchandise Letter of Credit Bank's best efforts to sell such
collateral and the net amount received from the sale of any such
collateral after deducting all
<PAGE> 4
expenses incurred in obtaining and selling such collateral; or
(b) with other evidence of such realization and best efforts, in
form, scope and substance satisfactory to the Collateral Agent and the
Co-Agents.
Until such amounts are paid to the Merchandise Letter of Credit Bank, the
Collateral Agent shall retain same and shall invest such amounts in Temporary
Cash Investments at the direction of the Merchandise Letter of Credit Bank for
the benefit of the Collateral Agent, the Administrative Agent, the Co-Agents,
the Banks and the Merchandise Letter of Credit Bank. In the event that the
Merchandise Letter of Credit Bank shall not have fulfilled the conditions
specified in clauses (i) and (ii) above within 180 days after it has actual
knowledge of the acceleration of those Obligations which caused there to be an
application of proceeds of Collateral as provided above, then the Merchandise
Letter of Credit Bank shall no longer have any rights in any amounts allocable
to it as provided above as the result of such acceleration (or any interest or
other income earned thereon) and such amounts and income shall be applied in
accordance with this Section 1 (without regard to provisions requiring the
allocation of proceeds to the Merchandise Letter of Credit Bank). In the event
that the Merchandise Letter of Credit Bank shall have fulfilled such conditions
within such 180 day period, then the Merchandise Letter of Credit Bank and, if
applicable, the Collateral Agent, the Administrative Agent, the Co-Agents and
the Banks shall be paid out of such Temporary Cash Investments such amounts as
shall be necessary to restore such Persons to the positions they would have been
in, taking into account any amounts received by the Merchandise Letter of Credit
Bank as a result of realizing upon its separate collateral, were it not for the
provisions of this Section 1B.
The parties hereto acknowledge that the current procedures of the
Borrower and the Merchandise Letter of Credit Bank with respect to Merchandise
Letters of Credit do not result in the Merchandise Letter of Credit Bank having
possession or control of all negotiable copies of bills of lading, dock
receipts, warehouse receipts or other documents of title and do not result in
the Merchandise Letter of Credit Bank necessarily having the ability to obtain
possession or control of the collateral described in clause (i) above at the
port or ports of entry for such collateral or elsewhere.
In the event that the amount of monies actually received by any Bank
or the Merchandise Letter of Credit Bank under clause (iii) (THIRD) above with
respect to the undrawn amount of the Bank Letters of Credit or the Merchandise
Letters of Credit issued or participated in by it shall exceed the amount of any
drawings under such letters of credit made after such Bank's or Merchandise
Letter of Credit Bank's receipt of such
<PAGE> 5
funds, which determination shall be made after the letters of credit issued or
participated in by such Bank or Merchandise Letter of Credit Bank have been
terminated or have expired, then such Bank or Merchandise Letter of Credit Bank
shall deliver such excess funds to the Collateral Agent to be applied in
accordance with this Section 1, unless forbidden by law or regulatory order.
Each of the Borrower and Somerville acknowledges and agrees that it shall remain
liable to the extent of any deficiency between the amount of the proceeds of the
Collateral applied to the Bank Obligations and all other payments received under
the Credit Agreement and the aggregate amount of the sums referred to in the
first through fourth clauses above relating to the Bank Obligations. Each Bank
and the Merchandise Letter of Credit Bank agrees that after it has actual
knowledge of the occurrence of a Collateral Realization Event it shall not issue
Bank Letters of Credit or Merchandise Letters of Credit or amend existing Bank
Letters of Credit or Merchandise Letters of Credit to increase the undrawn
amount thereof, nor incur any additional Obligations thereunder with respect
thereto other than interest and expenses of enforcement.
2. The Merchandise Letter of Credit Bank hereby:
A. irrevocably appoints and authorizes the Collateral Agent, the
Administrative Agent and the Co-Agents to take such action as collateral agent,
administrative agent and co-agents, respectively, on its behalf and to exercise
such powers under the Security Documents and this Inter-Facility Agreement as
are delegated to such Person by the terms hereof or thereof, together with all
such powers as are reasonably incidental thereto;
B. agrees that each of CIBC, The Bank of Nova Scotia, NationsBank of
Texas, N.A. and Bank of America National Trust and Savings Association shall
have the same rights and powers under the Security Documents and this Inter-
Facility Agreement as any other Bank and may exercise or refrain from exercising
the same as though it were not the Administrative Agent, a Co-Agent or the
Collateral Agent, as the case may be, and that CIBC, The Bank of Nova Scotia,
NationsBank of Texas, N.A. and Bank of America National Trust and Savings
Association and their Affiliates may accept deposits from, lend money to, and
generally engage in any kind of business with the Borrower or any Subsidiary or
Affiliate of the Borrower as if it were not the Administrative Agent, a Co-Agent
or the Collateral Agent, as the case may be, hereunder and under the Security
Documents;
C. agrees that the obligations of each of the Administrative Agent,
the Collateral Agent and the Co-Agents are only those expressly set forth herein
and in the Security Documents;
D. agrees that each of the Administrative Agent, the Collateral Agent
and the Co-Agents may consult with legal counsel (who may be counsel for the
Borrower), independent public
<PAGE> 6
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts;
E. agrees that neither the Administrative Agent, the Co-Agents, the
Collateral Agent nor any of their directors, officers, agents, or employees
shall be liable for any action taken or not taken by it in connection herewith
or in connection with any Security Document or this letter agreement (i) with
the consent or at the request of the Required Banks or the Merchandise Letter of
Credit Bank or (ii) in the absence of its own gross negligence or willful
misconduct. Neither the Administrative Agent, the Co-Agents, the Collateral
Agent nor any of their directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection with the Security
Documents, this Inter-Facility Agreement or the Collateral; (ii) the performance
or observance of any of the covenants or agreements of the Borrower; or (iii)
the validity, effectiveness or genuineness of the Security Documents, this
Inter-Facility Agreement, any other instrument or writing furnished in
connection herewith or therewith or the Collateral. None of the Administrative
Agent, the Co-Agents or the Collateral Agent shall incur any liability by acting
in reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex or similar writing) believed by it to be
genuine or to be signed by the proper party or parties;
F. acknowledges that it has, independently and without reliance upon
the Administrative Agent, the Co-Agents, the Collateral Agent or any Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Inter-Facility Agreement.
The Merchandise Letter of Credit Bank also acknowledges that it will,
independently and without reliance upon the Administrative Agent, the Co-Agents,
the Collateral Agent or any Bank, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking any action under this Inter-Facility Agreement; and
G. agrees that each of the Administrative Agent, the Co-Agents and
the Collateral Agent may resign at any time by giving written notice thereof to
the Banks, the Borrower and the Merchandise Letter of Credit Bank. Upon any
such resignation of the Administrative Agent or Collateral Agent, the Required
Banks shall have the right to appoint a successor Administrative Agent or
Collateral Agent. Upon any such resignation of a Co-Agent, no successor Co-
Agent shall thereafter be appointed and the rights and obligations of such Co-
Agent under the Security Documents and this Inter-Facility Agreement shall
cease. If no successor Administrative Agent or Collateral Agent shall have been
so
<PAGE> 7
appointed by the Required Banks and shall have accepted such appointment within
30 days after the retiring Administrative Agent's or Collateral Agent's giving
notice of resignation, then the retiring Administrative Agent or Collateral
Agent, as the case may be, may, on behalf of the Banks and the Merchandise
Letter of Credit Bank, appoint a successor Administrative Agent or Collateral
Agent, which shall be a Bank or a commercial bank organized under the laws of
the United States of America or of any State thereof and having a combined
capital and surplus of at least $100,000,000. Upon the acceptance of its
appointment as Administrative Agent or Collateral Agent hereunder and under the
Security Documents by a successor Administrative Agent or Collateral Agent, as
the case may be, such successor Administrative Agent or Collateral Agent shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Administrative Agent or Collateral Agent, as the case may be, and shall
be discharged from its duties and obligations hereunder and under the Security
Documents. After any retiring Administrative Agent's, Co-Agent's or Collateral
Agent's resignation hereunder as Administrative Agent, Co-Agent or Collateral
Agent, as the case may be, the provisions of this Section two shall injure to
its benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent, Co-Agent or Collateral Agent. The successor
Administrative Agent or Collateral Agent, as the case may be, shall deliver to
each of the Banks and the Merchandise Letter of Credit Bank notice of the
resignation of the predecessor Administrative Agent or Collateral Agent.
3. Each Bank and the Merchandise Letter of Credit Bank shall
indemnify the Administrative Agent, each Co-Agent and the Collateral Agent, as
the case may be, (to the extent not reimbursed by the Borrower) against any
cost, expense (including counsel fees and disbursements), claim, demand, action,
loss or liability (except such as result from such Person's gross negligence or
willful misconduct) that the Administrative Agent, such Co-Agent or the
Collateral Agent, as the case may be, may suffer or incur in connection with
this Inter-Facility Agreement or the Security Documents, the Collateral or any
action taken or omitted by the Administrative Agent, such Co-Agent or the
Collateral Agent hereunder or under the Security Documents. Such
indemnification shall be made pro rata by each Bank and the Merchandise Letter
of Credit Bank based upon the proportion of (x) its Revolving Commitment or
commitment to issue Merchandise Letters of Credit (the "Merchandise Letter of
Credit Commitment") at such time or, with respect to any Merchandise Letter of
Credit Bank which has no commitment to issue Merchandise Letters of Credit, the
aggregate stated amount of all outstanding Merchandise Letters of Credit issued
by it to (y) the aggregate of all the Revolving Commitments, the Merchandise
Letter of Credit Commitments and the aggregate stated amount of all outstanding
Merchandise Letters of Credit issued by any Merchandise Letter of Credit Bank
which has no commitment to issue Merchandise Letters of Credit at such time.
The provisions
<PAGE> 8
of this paragraph shall survive the termination of the Agreements and the
payment in full in cash of the Obligations.
4. Each of the parties hereto agrees that no provision of the
Security Documents may be amended or waived which has the effect of
substituting, discharging, releasing or surrendering any material portion of
Collateral (except as permitted in the Credit Documents) unless signed by the
Banks and the Merchandise Letter of Credit Bank. Further, no provision of the
Security Documents may be amended or waived which would have the effect of
eliminating or reducing the benefit of collateral granted to the Merchandise
Letter of Credit Bank under the Security Documents unless the Merchandise Letter
of Credit Bank shall consent thereto in writing.
5. Each of the Banks consents to the grant by the Borrower to the
Merchandise Letter of Credit Bank of the security interest in certain property
of the Borrower as provided in Section [3.6(a)] of the Merchandise Letter of
Credit Facility as in effect on the date of execution thereof (the "Merchandise
Collateral"). Further, each of the Banks acknowledges and agrees that the
Merchandise Letter of Credit Bank may after the occurrence and during the
continuance of an Event of Default under the Merchandise Letter of Credit
Facility apply the proceeds of the Merchandise Collateral to the Merchandise
Letter of Credit Obligations.
6. Each of the Banks acknowledges and agrees that the Borrower may
borrow Revolving Loans, subject to the terms and conditions of the Credit
Agreement, the proceeds of which may be applied to the payment of the Borrower's
obligations under or with respect to the Merchandise Letter of Credit Facility
and the Merchandise Letters of Credit. The Collateral Agent agrees to notify
the Merchandise Letter of Credit Bank in writing of the first exercise of any
rights or remedies that the Administrative Agent or Collateral Agent may have
under the Security Documents or Article IX of the Credit Agreement. Each of the
Banks, the Collateral Agent, the Co-Agents and the Administrative Agent agree
that should the Borrower grant to the Collateral Agent after the date hereof a
lien or security interest in any property of the Borrower, the Merchandise
Letter of Credit Bank shall have the benefit thereof in the same manner as the
Merchandise Letter of Credit Bank has under the Security Agreement.
7. Notwithstanding anything contained herein, in the Agreements or
elsewhere to the contrary, no Merchandise Letter of Credit Bank shall be
entitled to the benefits of this Agreement until such time as such Merchandise
Letter of Credit Bank has agreed in writing to be bound by the terms hereof.
8. This Inter-Facility Agreement (i) SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, (ii) may be
executed in two or more counterparts, each of which taken together shall
constitute one and the same
<PAGE> 9
agreement, (iii) may not be amended, modified or supplemented except by a
writing executed by all the parties hereto and (iv) shall insure to the benefit
and be binding upon the parties hereto and their successors and assigns.
9. Any provision of this Inter-Facility Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Inter-Facility
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, as
Administrative Agent and
Collateral Agent
By: s/David McGowan
-------------------------------
Title: Authorized Signatory
THE BANK OF NOVA SCOTIA,
as Co-Agent
By: s/F.C.H. Ashby
-------------------------------
Title: Senior Mgr. Loan Operations
NATIONSBANK OF TEXAS, N.A., as
Co-Agent
By: s/Perry B. Stephenson
-------------------------------
Title: Senior Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Co-Agent
By: s/G. Burton Queen
-------------------------------
Title: Vice President
<PAGE> 10
COMMERCE BANK, N.A.,
as Merchandise Letter of
Credit Bank
By: s/John M. McGee
-------------------------------
Title: Vice President
PAYLESS CASHWAYS, INC.
By: s/Stephen A. Lightstone
-------------------------------
Title: Senior Vice President
SOMERVILLE LUMBER AND SUPPLY CO.,
INC.
By: s/Stephen A. Lightstone
-------------------------------
Title: Treasurer
<PAGE> 1
Exhibit 10.3(b)
FIRST AMENDMENT TO PAYLESS CASHWAYS, INC.
CORPORATE MANAGEMENT INCENTIVE COMPENSATION PROGRAM
---------------------------------------------------
FIRST AMENDMENT (the "First Amendment") to the Payless Cashways, Inc.
Corporate Management Incentive Compensation Program (the "Program) dated
December, 1991.
WHEREAS, Payless Cashways, Inc. (the "Company") established the Program for
the purpose of compensating individuals in accordance with their skills and
responsibilities and to reward superior performance; and
WHEREAS, the Company desires to amend: (1) the section entitled "INCENTIVE
AWARD DETERMINATION" to allow the awards to be based upon achievement of
specified EBITDA levels, as opposed to EBITD levels currently set forth in the
Program; and (2) to amend the annual incentive percentage of salary for salary
grades E16 and E17 under the section entitled "PAYLESS CASHWAYS, INC. CORPORATE
MANAGEMENT INCENTIVE AWARD SCHEDULE";
NOW, THEREFORE, the Program is amended as follows:
1. The section entitled "INCENTIVE AWARD DETERMINATION" is hereby amended,
effective November 27, 1994, by deleting the section in its entirety and
substituting the following section therefor:
"INCENTIVE AWARD DETERMINATION"
-----------------------------
The incentive award under the Corporate component will be earned based upon
achievement of specified EBITDA levels, as established by the Compensation
Committee of the Board of Directors. The award schedule will be as
follows:
<TABLE>
<CAPTION>
% of % of Target
EBITDA Attained Incentive Paid
--------------- --------------
<C> <C>
90% 50%
91% 55%
92% 60%
93% 65%
94% 70%
95% 75%
96% 80%
97% 85%
98% 90%
99% 95%
100% 100%
101% 105%
102% 110%
103% 115%
104% 120%
105% 125%
106% 130%
107% 135%
108% 140%
109% 145%
110% and above 150%
</TABLE>
2. Under the section entitled "PAYLESS CASHWAYS, INC. CORPORATE MANAGEMENT
INCENTIVE AWARD SCHEDULE", the annual incentive percentage of salary for
salary grades E16 and E17 will be amended, as follows:
<TABLE>
<CAPTION>
Annual Incentive
Salary Grade % of Salary Effective Date
------------ ---------------- --------------
<C> <C> <C>
E16 45% November 27, 1994
E17 50% November 28, 1993
</TABLE>
<PAGE> 2
IN WITNESS WHEREOF, the Company has caused this Instrument to be executed
by its duly authorized officers on this 2nd day of February, 1995.
PAYLESS CASHWAYS, INC.
By: /s/ E. J. Holland, Jr.
------------------------
E. J. Holland, Jr.
Senior Vice President-
Human Resources
ATTEST:
/s/ Linda J. French
- --------------------------
Linda J. French, Secretary
<PAGE>
Exhibit 10.14(c)
AMENDMENT TO THE PAYLESS
CASHWAYS, INC. SUPPLEMENTAL
RETIREMENT PLAN
Effective September 7, 1993, Article 2.1(a) of The Payless Cashways, Inc.
Supplemental Retirement Plan will be amended to read in its entirety as follows:
(a) "Compensation" means the total cash remuneration payable to the
Executive by the Company and any Subsidiary, including Salary, Bonus
and other cash amounts which would have been reported on Treasury Form
W-2 (or any comparable successor form) for a Plan Year if the
Executive had not entered into Deferred Compensation Agreement,
increases by any amounts deferred under the Employee Savings Plan by
Compensation reduction or other similar arrangement, any elective
deferrals under any cash and deferred plan described in Internal
Revenue Code Section 401(k) of the Company or a Subsidiary or
Compensation reduction under a cafeteria plan described in Internal
Revenue Code Section 125(d) of the Company or a Subsidiary; and
excluding expense reimbursement, moving expense payments, third-party
sick pay, imputed income (from excess life insurance premiums,
automobile use premiums or any other source), non-qualified stock
options, disqualifying dispositions of stock acquired pursuant to the
exercise of incentive stock options, stock appreciation rights,
amounts attributable to long-term incentive plans, severance
settlements, Compensation for perquisites and other personal benefits
(including but not limited to Compensation paid for tax withholding
and Compensation in lieu of vacation) and similar items of
remuneration.
<PAGE> 1
Exhibit 11.1
PAYLESS CASHWAYS, INC. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS (LOSS)
- ---------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year End
----------------------------------------------
November 26, November 27, November 28,
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
PRIMARY
- -------
Income (loss) before extraordinary item and cumulative effect
of change in accounting principle $ 52,132 $ 9,669 $ (9,000)
Less:
Preferred stock dividends (5,106) (4,718) (4,358)
Changes in redemption of value of common
stock subject to puts and calls and
warrants subject to puts -- -- (455)
--------- --------- ---------
Income (loss) before extraordinary item and cumulative effect
of change in accounting principle available to
common shareholders 47,026 4,951 (13,813)
Extraordinary loss (7,243) (45,828) --
Cumulative effect on prior years of change in
accounting for post-retirement benefits -- -- (6,902)
--------- --------- ---------
Net income (loss) available to common shareholders $ 39,783 $(40,877) $(20,715)
Weighted average common and dilutive
common equivalent shares outstanding 40,257 30,514 6,571 (2)
--------- --------- ---------
Weighted average common shares outstanding (1) 39,791 29,875 6,571
--------- --------- ---------
Income (loss) per common share before extraordinary item
and cumulative effect of change in accounting principle $ 1.17 $ .16 $ (2.10)
Extraordinary loss per common share (.18) (1.53) --
Cumulative effect on prior years of change in
accounting principle per common share -- -- (1.05)
--------- --------- ---------
Net income (loss) per common share $ .99 $ (1.37) $ (3.15)
========= ========= =========
FULLY DILUTED
- -------------
Income (loss) before extraordinary item and cumulative effect
of change in accounting principle $ 52,132 $ 9,669 $ (9,000)
Less:
Preferred stock dividends (5,106) -- --
Changes in redemption of value of common
stock subject to puts and calls and
warrants subject to puts -- -- (455)
--------- --------- ---------
Income (loss) before extraordinary item and cumulative effect
of change in accounting principle available to
common shareholders 47,026 9,669 (9,455)
Extraordinary loss (7,243) (45,828) --
Cumulative effect on prior years of change in
accounting for post-retirement benefits -- -- (6,902)
--------- --------- ---------
Net income (loss) available to common shareholders $39,783 $(36,159) $(16,357)
Weighted average common and dilutive
common equivalent shares outstanding 40,257 32,482 6,571 (2)
--------- --------- ---------
Weighted average common shares outstanding (1) 39,791 29,875 6,571
--------- --------- ---------
Income (loss) per common share before extraordinary item
and cumulative effect of change in accounting principle $ 1.17 $ .30 $ (1.44)
Extraordinary loss per common share (.18) (1.53) --
Cumulative effect on prior years of change in
accounting principle per common share -- -- (1.05)
--------- --------- ---------
Net income (loss) per common share $ .99 $ (1.21) $ (2.49)
========= ========= =========
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
PAYLESS CASHWAYS, INC. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS (LOSS)
- ---------------------------------------
(In thousands, except per share amounts)
Quarter Ended
-------------------------------------------------------------
February 26, May 28, August 27, November 26,
1994 1994 1994 1994
------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Income (loss) before extraordinary item $ (681) $ 16,956 $ 18,345 $ 17,512
Less:
Preferred stock dividends (1,239) (1,264) (1,289) (1,315)
----------- ---------- ---------- ----------
Income (loss) before extraordinary item
available to common shareholders (1,920) 15,692 17,056 16,197
Extraordinary gain (loss) -- 55 288 (7,586)
----------- ---------- ---------- ----------
Net income (loss) available to common
shareholders $ (1,920) $ 15,747 $ 17,344 $ 8,611
----------- ---------- ---------- ----------
Weighted average common and dilutive
common equivalent shares outstanding 39,628 (2) 41,013 40,320 40,066
----------- ---------- ---------- ----------
Weighted average common shares outstanding (1) 39,628 N/A N/A 39,874
----------- ---------- ---------- ----------
Income (loss) per common share before
extraordinary item $ (.05) $ .38 $ .42 $ .40
Extraordinary gain (loss) per common share -- -- .01 (.19)
----------- ---------- ---------- ----------
Net income (loss) per common share $ (.05) $ .38 $ .43 $ .21
=========== ========== ========== ==========
FULLY DILUTED
- -------------
Income (loss) before extraordinary item $ (681) $ 16,956 $ 18,345 $ 17,512
Less:
Preferred stock dividends -- -- (1,289) (1,315)
----------- ---------- ---------- ----------
Income (loss) before extraordinary item
available to common shareholders (681) 16,956 17,056 16,197
Extraordinary gain (loss) -- 55 288 (7,586)
----------- ---------- ---------- ----------
Net income (loss) available to common
shareholders $ (681) $ 17,011 $ 17,344 $ 8,611
=========== ========== ========== ==========
Weighted average common and dilutive
common equivalent shares outstanding 39,628 (2) 43,449 40,321 40,066
----------- ---------- ---------- ----------
Weighted average common shares outstanding (1) 39,628 N/A N/A 39,874
----------- ---------- ---------- ----------
Income (loss) per common share before
extraordinary item $ (.02) $ .39 $ .42 $ .40
Extraordinary gain (loss) per common share -- -- .01 (.19)
----------- ---------- ---------- ----------
Net income (loss) per common share $ (.02) $ .39 $ .43 $ .21
=========== ========== ========== ==========
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAYLESS CASHWAYS, INC. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS (LOSS)
- ----------------------------------------
(In thousands, except per share amounts)
Quarter Ended
-------------------------------------------------------------
February 27, May 29, August 28, November 27,
1993 1993 1993 1993
------------ ---------- ------------- -------------
PRIMARY
- -------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item $ (21,244) $ 7,130 $ 8,138 $ 15,645
Less:
Preferred stock dividends (1,145) (1,167) (1,191) (1,215)
----------- --------- ---------- ----------
Income (loss) before extraordinary item
available to common shareholders (22,389) 5,963 6,947 14,430
Extraordinary loss -- (9,111) (9,471) (27,246)
----------- --------- ---------- ----------
Net loss available to common shareholders $ (22,389) $ (3,148) $ (2,524) $ (12,816)
----------- --------- ---------- ----------
Weighted average common and dilutive
common equivalent shares outstanding 6,571 (2) 34,953 40,355 40,176
----------- --------- ---------- ----------
Weighted average common shares
outstanding (1) 6,571 33,958 39,457 39,512
----------- --------- ---------- ----------
Income (loss) per common share before
extraordinary item $ (3.41) $ .17 $ .17 $ .36
Extraordinary loss per common share -- (.27) (.24) (.69)
----------- --------- ---------- ----------
Net loss per common share $ (3.41) $ (.09) $ (.06) $ (.32)
=========== ========= ========== ==========
FULLY DILUTED
- -------------
Income (loss) before extraordinary item
available to common shareholders $ (21,244) $ 7,130 $ 8,138 $ 15,645
Extraordinary loss -- (9,111) (9,471) (27,246)
----------- --------- ---------- ----------
Net loss available to common shareholders $ (21,244) $ (1,981) $ (1,333) $ (11,601)
----------- --------- ---------- ----------
Weighted average common and dilutive
common equivalent shares outstanding 6,571 (2) 37,389 43,026 42,941
----------- --------- ---------- ----------
Weighted average common shares
outstanding (1) 6,571 33,958 39,457 39,512
----------- --------- ---------- ----------
Income (loss) per common share before
extraordinary item $ (3.23) $ .19 $ .19 $ .36
Extraordinary loss per common share -- (.27) (.24) (.69)
----------- --------- ---------- ----------
Net loss per common share $ (3.23) $ (.06) $ (.03) $ (.29)
=========== ========= ========== ==========
<FN>
(1) Excludes dilutive common equivalent shares for computation of loss per common share.
(2) Due to a loss being incurred for the period, dilutive common equivalent shares have not been computed as the resulting earnings
per share would be antidilutive.
</TABLE>
<PAGE> 4
Exhibit 13.1
Payless Cashways, Inc. and subsidiary
QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal Year Ended November 26, 1994 Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income
Net sales $ 542,053 $ 734,215 $ 744,112 $ 702,159
Other income 1,256 2,711 2,008 4,668
---------- ---------- ---------- ----------
543,309 736,926 746,120 706,827
Costs and expenses
Cost of merchandise sold 375,281 518,659 530,402 494,332
Selling, general and administrative 137,882 156,358 149,569 150,215
Provision for depreciation and amortization 14,298 14,565 15,116 14,713
Interest expense 16,605 16,463 16,348 16,155
---------- ---------- ---------- ----------
544,066 706,045 711,435 675,415
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (757) 30,881 34,685 31,412
Federal and state income taxes (76) 13,481 15,635 12,768
---------- ---------- ---------- ----------
Income (loss) before equity in loss of joint venture and (681) 17,400 19,050 18,644
extraordinary item
Equity in loss of joint venture -- (444) (705) (1,132)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item (681) 16,956 18,345 17,512
Extraordinary item: early extinguishment of debt -- 55 288 (7,586)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (681) $ 17,011 $ 18,633 $ 9,926
========== ========== ========== ==========
Income (loss) per common share before extraordinary item $ (.05) $ .38 $ .42 $ .40
Extraordinary item: early extinguishment of debt -- -- .01 (.19)
---------- ---------- ---------- ----------
Net income (loss) per common share $ (.05) $ .38 $ .43 $ .21
========== ========== ========== ==========
Weighted average common and dilutive common
equivalent shares outstanding 39,628 41,013 40,320 40,066
========== ========== ========== ==========
<FN>
A lower-than-anticipated rate of inflation decreased the LIFO inventory provision, after tax, by $1.0 million, or $ .03 per share,
in the fourth quarter. Other income includes gains of $1.9 million, $.9 million and $3.1 million in the second, third and fourth
quarters, respectively, related to settlements of 1993 flood losses.
</TABLE>
<PAGE> 5
Payless Cashways, Inc. and subsidiary
QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (cont'd.)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal Year Ended November 27, 1993 Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income
Net sales $ 492,843 $ 698,786 $ 716,853 $ 692,521
Other income 1,272 1,344 1,077 1,282
---------- ---------- ---------- ----------
494,115 700,130 717,930 693,803
Costs and expenses
Cost of merchandise sold 336,262 493,909 509,862 484,630
Selling, general and administrative 130,303 149,279 146,367 144,067
Provision for depreciation and amortization 13,663 13,935 14,260 14,355
Interest expense 37,891 34,950 31,415 20,991
Special charges -- -- -- 4,000
---------- ---------- ---------- ----------
518,119 692,073 701,904 668,043
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (24,004) 8,057 16,026 25,760
Federal and state income taxes (2,760) 927 7,888 10,115
---------- ---------- ---------- ----------
Income (loss) before extraordinary item (21,244) 7,130 8,138 15,645
Extraordinary item: early extinguishment of debt -- (9,111) (9,471) (27,246)
---------- ---------- ---------- ----------
NET LOSS $ (21,244) $ (1,981) $ (1,333) $ (11,601)
========== ========== ========== ==========
Income (loss) per common share before extraordinary item (3.41) .17 .17 .36
Extraordinary item: early extinguishment of debt -- (.27) (.24) (.69)
---------- ---------- ---------- ----------
Net loss per common share $ (3.41) $ (.09) $ (.06) $ (.32)
========== ========== ========== ==========
Weighted average common and dilutive common
equivalent shares outstanding 6,571 34,953 40,355 40,176
========== ========== ========== ==========
<FN>
A lower-than-anticipated rate of inflation decreased the LIFO inventory provision, after tax, by $1.0 million, or $.03 per share,
in the fourth quarter. Special charges reflected in the fourth quarter relate to costs associated with the elimination of a layer
of management in the Company's field organization.
</TABLE>
<PAGE> 6
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financing Activities
In November, 1994, the Company entered into a new five-year, $420 million credit
agreement (the "1994 Credit Agreement"), replacing its existing bank credit
agreement and multi-draw credit agreement (the "1994 Multi-Draw Credit
Agreement"). The 1994 Credit Agreement lowered interest rates, thereby reducing
future interest expense incurred under the bank credit agreement by more than $4
million annually, and increased the availability of funds for capital
expenditures by $12.5 to $15 million per year. The Company has entered into an
interest rate cap limiting the interest rates on $100 million of its floating
rate debt to 8% LIBOR.
During 1994, the Company repurchased and retired $26.3 million aggregate
principal amount of Senior Subordinated Notes with $25 million borrowed under
the 1994 Multi-Draw Credit Agreement.
In 1993, the Company developed and executed a recapitalization plan (the
"Recapitalization Plan") which consisted of a series of transactions, completed
during 1993, designed to increase shareholders' equity, reduce the Company's
debt and interest expense, improve the Company's access to capital markets and
improve the Company's operating and financial flexibility. See "Results of
Operations" for pro forma consolidated operating data for fiscal 1993 and 1992
as if the Recapitalization Plan had occurred at the beginning of each of those
years. See Note B to the Consolidated Financial Statements for further
discussion of the Recapitalization Plan.
At November 26, 1994, Payless had approximately $674.4 million of indebtedness.
Payless expects from time to time to incur additional seasonal indebtedness.
Results of Operations
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere in this Annual Report to
Shareholders.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------
Nov. 26, Nov. 27, Nov. 28,
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Operating Data (percent of net sales):
Net sales 100.0 % 100.0 % 100.0 %
Other income .4 .2 .2
Cost of merchandise sold 70.5 70.2 69.7
Selling, general and administrative 21.8 21.9 22.1
Provision for depreciation and amortization 2.2 2.2 2.2
Interest expense 2.4 4.8 6.2
Special charges -- .1 .3
------- ------- -------
Income (loss) before income taxes 3.5 1.0 (.2)
Federal and state income taxes 1.6 .6 .1
------- ------- -------
Income (loss) before extraordinary item and cumulative
effect of change in accounting principle 1.9 .4 (.4)
Extraordinary item (.3) (1.8) --
Cumulative effect of change in accounting
principle -- -- (.3)
------- ------- -------
Net income (loss) 1.6 % (1.4)% (.6)%
======= ======= =======
</TABLE>
<PAGE> 7
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd.)
SALES
During each of the fiscal years in the three-year period ended November 26,
1994, net sales increased primarily as a result of the growth in business from
professional customers. In addition, seven new stores were opened during 1994,
including the replacement of a store destroyed by the 1993 floods, and one store
was opened during 1993. Net sales increased 4.7% for fiscal 1994 over fiscal
1993, and 4.2% for fiscal 1993 over fiscal 1992. Comparable-store sales (sales
from stores that have been open one full year) increased by 3.3% for fiscal
1994, and 4.1% for fiscal 1993.
Other income for fiscal year 1994 includes gains of $5.9 million related to
settlements of 1993 flood losses.
COSTS AND EXPENSES
The cost of merchandise sold, as a percent of sales, was 70.5% in fiscal 1994,
70.2% in fiscal 1993 and 69.7% in fiscal 1992. The increase in 1994 and 1993
was due primarily to the growth in sales to the professional customer whose
merchandise purchases include a higher percentage of commodity goods at margin
rates somewhat lower than the Company average. The LIFO provision in fiscal 1994
was $3.1 million compared to $2.0 million in fiscal 1993 and $1.2 million in
fiscal 1992, reflecting only slightly increased inflation rates in all three
years.
Selling, general and administrative expenses, as a percent of sales, were 21.8%,
21.9%, and 22.1% for fiscal 1994, 1993 and 1992, respectively, reflecting the
Company's continued emphasis on reducing operating costs.
The provision for depreciation and amortization increased in fiscal 1994 and, to
a lesser extent, in fiscal 1993 because completion of the Recapitalization Plan
increased the Company's funds available for capital expenditures. Prior to
1993, capital expenditures had been more limited and the related provision for
depreciation and amortization had been decreasing.
Interest expense decreased $59.7 million from $125.2 million in fiscal 1993 to
$65.6 million in fiscal 1994 due primarily to the retirement of long-term debt
in connection with the Recapitalization Plan. Similarly, the $28.5 million
decrease in interest expense from $153.8 million in fiscal 1992, compared to
fiscal 1993, also was attributable to the retirement of debt with the
Recapitalization Plan. Had the Recapitalization Plan been completed at the
beginning of fiscal 1992, the Company believes it would have resulted in
aggregate interest expense savings (including non-cash interest) to the Company
of approximately $55.7 million and $78.8 million in 1993 and 1992, respectively.
At the end of 1993, the Company decided to eliminate a layer of management in
the field organization and recognized a special charge of $4.0 million in the
fourth quarter of 1993 to reflect the associated costs. The elimination of this
management layer took place in January, 1994.
Expenses of $6.5 million, related to a prior withdrawn recapitalization plan,
were recognized as a special charge in the second quarter of 1992.
<PAGE> 8
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd.)
NET INCOME (LOSS)
The Company had income before extraordinary item and cumulative effect of change
in accounting principle of $52.1 million in fiscal 1994 compared to $9.7 million
in fiscal 1993 and a loss of $9.0 million in fiscal 1992 primarily because of
reduced interest expense as a result of 1993 long-term debt retirements related
to the Recapitalization Plan and improved operating results. The 1994 net
income includes an extraordinary charge of $7.7 million, net of tax, in
connection with the write-off of previously deferred financing costs as a result
of refinancing the Company's bank credit agreement, a $.5 million extraordinary
gain from the redemption of $26.3 million aggregate principal amount of its
Senior Subordinated Notes, and the Company's $2.3 million share of the loss in
its Mexican joint venture with Alfa, S.A. de C.V. The 1993 net loss includes
$4.0 million ($2.5 million net of tax) of costs associated with the elimination
of a field management layer in early 1994 and $45.8 million, net of tax, of
extraordinary charges related to the early extinguishment of debt in connection
with the Recapitalization Plan.
The effective tax rates for fiscal 1994, 1993 and 1992 were different from the
35% (34% in 1993 and 1992) federal statutory rate primarily because the
amortization of costs in excess of net assets acquired (goodwill) is non-
deductible. Additionally, $1.2 million was charged to income tax expense in the
third quarter of 1993 to reflect the cumulative impact of the corporate income
tax rate changes enacted by the Omnibus Budget Reconciliation Act of 1993.
In November 1992, the Financial Accounting Standards Board issued a new standard
on accounting for post-employment benefits. Currently, the Company does not
expect to implement this standard due to the immaterial effect on its
consolidated financial statements.
The following table presents summary historical consolidated operating data of
the Company for the fiscal year ended November 26, 1994, and summary unaudited
pro forma consolidated operating data of the Company ("Pro Forma Data") for the
fiscal years ended November 27, 1993, and November 28, 1992, which gives effect
to the Recapitalization Plan as if it had occurred at the beginning of the years
presented. Special charges of $6.5 million, reflecting the fees and expenses
incurred in connection with the Company's withdrawn 1992 recapitalization plan,
have been excluded from the Pro Forma Data for the 1992 period. The Pro Forma
Data is based upon available information and certain assumptions that management
believes are reasonable. The Pro Forma Data does not purport to represent what
the Company's results of operations would actually have been if the transactions
had occurred at the beginning of the years presented, or to project the
Company's financial position, or results of operations, for any future period.
<TABLE>
<CAPTION>
Historical Pro Forma Data
----------------- ---------------------------------
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
(In thousands, except per share amounts) November 26, 1994 Nov. 27, 1993 Nov. 28, 1992
----------------- ------------- -------------
<S> <C> <C> <C>
Unaudited Pro Forma Consolidated Operating Data:
Net sales and other income $ 2,733,182 $ 2,605,978 $ 2,500,364
Interest expense 65,571 69,541 74,938
Income before income taxes, equity in loss of joint
venture, extraordinary item, and cumulative effect
of change in accounting principle 96,221 81,545 79,123
Income before extraordinary item and cumulative
effect of change in accounting principle 52,132 44,666 43,189
Income per common share before extraordinary
item and cumulative effect of change in
accounting principle $ 1.17 $ .99 $ .96
Weighted average common and dilutive
common equivalent shares outstanding 40,257 40,240 40,240
</TABLE>
<PAGE> 9
Payless Cashways, Inc. and subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd.)
EFFECTS OF INFLATION
The Company's inflation rates, included in the cost of merchandise sold, for
fiscal 1994, 1993 and 1992, were comparable. Approximately 81% of the Company's
inventory is valued using the LIFO inventory accounting method; therefore,
current costs are reflected in the cost of merchandise sold, rather than in
inventory balances.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash is from operations. Cash provided by
operating activities was $117.3 million for fiscal 1994, compared to $109.0
million for fiscal 1993 and $88.6 million for fiscal 1992. The primary reason
for the increases in cash provided by operating activities in these periods was
increases in operating income, resulting primarily from reduced cash interest
payments. The Company's 1992 cash flow reflects $6.5 million used for its
withdrawn recapitalization plan.
Borrowings are available under the 1994 Credit Agreement to supplement cash
generated by operations. At November 26, 1994, $54.4 million was available for
borrowing. Working capital was $139.1 million and $85.1 million at the end of
fiscal 1994 and fiscal 1993, respectively. The current ratio was 1.45 to 1 and
1.25 to 1 at the end of fiscal 1994 and fiscal 1993, respectively. The primary
reason for the increase in working capital and the current ratio was a lower
current portion of long-term debt due to the 1994 Credit Agreement. The
Company's inventory levels are at the lowest levels during the seasonally low
sales months of December through February and are at the highest levels during
the peak selling season of May through September. During the peak period,
inventory is financed by cash from operations and trade accounts payable.
During the winter months, inventory is financed by cash from operations, trade
accounts payable and borrowings under the 1994 Credit Agreement, as needed. The
Company believes that cash generated from operations and borrowings under the
1994 Credit Agreement will adequately meet its working capital needs, debt
service and other obligations which will become due in fiscal 1995.
The Company's primary investing activities continue to be capital expenditures
for new and existing stores and distribution centers. The 1994 Credit Agreement
governs the amount of capital expenditures which can be made and increases by
$12.5 to $15 million per year the funds available for capital expenditures
compared to the previous bank credit agreement. The Company spent approximately
$81.9 million, $50.0 million and $36.6 million in fiscal 1994, 1993 and 1992,
respectively, for new stores, renovated stores and distribution centers, and
equipment. During 1994, seven new stores were opened, one of which was the
permanent replacement for a 1993 flood-damaged store. The Company intends to
finance fiscal 1995 budgeted capital expenditures of approximately $82.5
million, consisting primarily of four new stores, additional equipment, and
renovation of existing stores with funds generated from operations. Four
additional 1995 new stores will be leased. The Company has entered into an
agreement providing for the lease of two of its 1994 new stores and up to six of
its 1995 or 1996 new stores. These leases will be classified as operating
leases.
The Company also invested $6.4 million in its joint venture, Total Home de
Mexico, S.A. de C.V., during fiscal 1994. The first Total Home store opened in
Monterrey, Mexico, in December, 1994. In 1994, the Company incurred a $2.3
million loss on the start-up of the joint venture and, in 1995, expects to incur
a loss of $4 to $5 million. The Company continues to assess economic conditions
in Mexico as they relate to long range plans for as many as 30 Total Home stores
over the next several years.
The Company's most significant financing activity is and will continue to be the
retirement of indebtedness. Although the Company's consolidated indebtedness is
and will continue to be substantial, management believes that based upon the
Company's recent recapitalization and management's analysis of the Company's
financial condition, the cash flow generated from operations during the past 12
months and the expected results of operations in the future, cash flow from
operations and borrowings under the 1994 Credit Agreement should provide
sufficient liquidity to meet all cash requirements for the next 12 months
without additional borrowings.
<PAGE> 10
Payless Cashways, Inc. and subsidiary
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements of Payless Cashways, Inc. and subsidiary
have been prepared by management in accordance with generally accepted
accounting principles and necessarily include amounts based on management's
judgment and best estimates. The presentation, integrity and consistency of the
financial statements are the responsibility of management.
The consolidated financial statements have been audited by KPMG Peat Marwick
LLP, independent auditors. Their responsibility is to audit the Company's
consolidated financial statements in accordance with generally accepted auditing
standards and to express their opinion on these statements with respect to
fairness of presentation of the Company's financial position, results of
operations and cash flows.
To fulfill its responsibilities, management has developed a system of internal
controls designed to provide reasonable assurance that assets are safeguarded,
transactions are executed in accordance with management's authorizations and
financial records provide a reliable basis for preparing financial statements
and other data. Management believes the controls in place are sufficient to
provide this reasonable assurance. The controls include careful selection and
training of qualified personnel, appropriate division of responsibilities,
communication of written policies and procedures throughout the Company and a
program of internal audits.
The Board of Directors, through its Audit Committee composed of Directors who
are neither officers nor employees of the Company, is responsible for the
maintenance of a strong control environment and quality financial reporting. The
Board, on the recommendation of the Audit Committee, selects and engages the
independent auditors. The Audit Committee meets periodically with management,
the independent auditors and internal auditors to discuss the results of both
independent and internal audits, the adequacy of internal controls and financial
reporting matters. The independent auditors and the internal auditors have
direct access to the Audit Committee without the presence of management when
deemed appropriate.
s/David Stanley s/Stephen A. Lightstone
- ----------------------------------- -------------------------------------
David Stanley Stephen A. Lightstone
Chairman of the Board Senior Vice President-Finance/Treasurer
and Chief Executive Officer and Chief Financial Officer
<PAGE> 11
[KPMG Peat Marwick LLP Letterhead]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Payless Cashways, Inc.:
We have audited the accompanying consolidated balance sheets of Payless
Cashways, Inc. and subsidiary as of November 26, 1994 and November 27, 1993, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the fiscal years in the three-year period ended November 26,
1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Payless Cashways,
Inc. and subsidiary as of November 26, 1994 and November 27, 1993, and the
results of their operations and their cash flows for each of the fiscal years in
the three-year period ended November 26, 1994 in conformity with generally
accepted accounting principles.
As discussed in Note G to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-retirement Benefits Other than Pensions," in
fiscal 1992.
s/KPMG Peat Marwick LLP
Kansas City, Missouri
January 9, 1995
<PAGE> 12
Payless Cashways, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------------------
November 26, November 27, November 28,
(In thousands, except per share amounts) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Net sales $ 2,722,539 $ 2,601,003 $ 2,495,906
Other income--Note A 10,643 4,975 4,458
------------ ------------ ------------
2,733,182 2,605,978 2,500,364
Costs and expenses
Cost of merchandise sold 1,918,674 1,824,663 1,739,396
Selling, general and
administrative--Notes A, F, G and H 594,024 570,016 551,479
Provision for depreciation and amortization 58,692 56,213 55,429
Interest expense--Note C 65,571 125,247 153,780
Special charges--Note I -- 4,000 6,500
------------ ------------ ------------
2,636,961 2,580,139 2,506,584
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 96,221 25,839 (6,220)
Federal and state income taxes--Note E 41,808 16,170 2,780
------------ ------------ ------------
Income (loss) before equity in loss of joint venture,
extraordinary item and cumulative effect of change
in accounting principle 54,413 9,669 (9,000)
Equity in loss of joint venture (2,281) -- --
------------ ------------ ------------
Income (loss) before extraordinary item and cumulative
effect of change in accounting principle 52,132 9,669 (9,000)
Extraordinary item: early extinguishment of
debt--Notes B, C and E (7,243) (45,828) --
Cumulative effect on prior years of change in
accounting for post-retirement benefits--
Notes E and G -- -- (6,902)
------------ ------------ ------------
NET INCOME (LOSS) $ 44,889 $ (36,159) $ (15,902)
============ ============ ============
Net income (loss) attributable to common stock $ 39,783 $ (40,877) $ (20,715)
============ ============ ============
Income (loss) per common share before extraordinary
item and cumulative effect of change in accounting
principle $ 1.17 $ .16 $ (2.10)
Extraordinary item: early extinguishment of debt (.18) (1.53) --
Cumulative effect on prior years of change in
accounting for post-retirement benefits -- -- (1.05)
------------ ------------ ------------
Net income (loss) per common share--Note A $ .99 $ (1.37) $ (3.15)
============ ============ ============
Weighted average common and dilutive common
equivalent shares outstanding--Notes A and D 40,257 30,514 6,571
============ ============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 13
Payless Cashways, Inc. and subsidiary
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 26, November 27
(In thousands) 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,680 $ 3,673
Trade receivables 6,003 14,773
Merchandise inventories--Note A 406,066 382,403
Prepaid expenses and other current assets 25,572 17,056
Deferred income taxes--Note E 9,549 9,797
------------- ------------
TOTAL CURRENT ASSETS 449,870 427,702
OTHER ASSETS
Real estate held for sale 5,498 7,149
Cost in excess of net assets acquired,
less accumulated amortization of $82,355
and $69,339--Note A 438,311 451,327
Deferred financing costs--Note C 11,199 26,326
Other 17,706 8,861
LAND, BUILDINGS AND EQUIPMENT--Notes A and C
Land and land improvements 183,798 178,251
Buildings 481,409 435,886
Equipment 97,157 103,959
Automobiles and trucks 28,086 28,739
Construction in progress 20,375 2,280
Allowance for depreciation and amortization (237,527) (211,999)
------------- ------------
TOTAL LAND, BUILDINGS AND EQUIPMENT 573,298 537,116
------------- ------------
$ 1,495,882 $ 1,458,481
============= ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 14
Payless Cashways, Inc. and subsidiary
CONSOLIDATED BALANCE SHEETS (cont'd.)
<TABLE>
<CAPTION>
November 26, November 27
(In thousands) 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt--Note C $ 20,269 $ 55,978
Advances under bank facilities -- 5,000
Trade accounts payable 151,059 145,265
Salaries, wages and bonuses 30,059 29,202
Accrued interest 3,841 5,290
Insurance reserves 17,940 17,068
Other accrued expenses--Note F 55,315 49,653
Taxes, other than income taxes 20,876 19,963
Income taxes payable--Note E 11,383 15,141
----------- -----------
TOTAL CURRENT LIABILITIES 310,742 342,560
LONG-TERM DEBT, less portion classified as current
liability--Note C 654,131 640,127
NON-CURRENT LIABILITIES
Deferred income taxes--Note E 72,129 64,624
Other--Note G 23,015 23,859
SHAREHOLDERS' EQUITY--Notes A, C and D
Preferred Stock, $1.00 par value, 25,000,000
shares authorized; issued:
Cumulative Preferred Stock, 406,000 shares,
$26.5 million aggregate liquidation preference 40,600 40,600
Common Stock, $.01 par value:
Voting, 150,000,000 shares authorized, 37,624,222
and 36,161,771 shares issued, respectively 376 361
Non-Voting Class A, 5,000,000 shares authorized, 2,250,000
shares issued 23 23
Non-Voting Class B, 5,000,000 shares authorized, 0 and
1,125,000 shares issued, respectively -- 11
Additional paid-in capital 486,326 482,575
Foreign currency translation adjustment (90) --
Accumulated deficit (91,370) (136,259)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 435,865 387,311
----------- -----------
COMMITMENTS--Notes F, G and H
$1,495,882 $1,458,481
=========== ===========
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 15
Payless Cashways, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------
November 26, November 27, November 28,
(In thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 44,889 $ (36,159) $ (15,902)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 58,692 56,213 55,429
Non-cash interest -- Note C 4,803 39,119 56,215
Loss on early extinguishment of debt--Note C 7,243 45,828 --
Equity in loss of joint venture 2,281 -- --
Deferred income taxes 7,753 (9,425) (5,182)
Cumulative effect on prior years of change in
accounting for post-retirement benefits--Note G -- -- 6,902
Other 1,674 835 2,896
Changes in assets and liabilities:
Decrease (increase) in trade receivables 8,770 (1,174) (3,063)
Increase in merchandise inventories (23,663) (24,199) (8,321)
(Increase) decrease in prepaid expenses
and other current assets (8,831) 5,527 450
Increase (decrease) in trade accounts payable 5,794 12,036 (388)
Increase (decrease) in other current liabilities 7,925 20,426 (396)
----------- ----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 117,330 109,027 88,640
Cash Flows from Investing Activities
Additions to land, buildings and equipment (81,906) (49,982) (36,612)
Proceeds from sale of land, buildings and equipment 2,175 1,306 2,637
Investment in joint venture (6,369) (490) --
Increase in other assets (5,788) (1,082) (228)
----------- ----------- ------------
NET CASH USED IN INVESTING ACTIVITIES (91,888) (50,248) (34,203)
Cash Flows from Financing Activities
Proceeds from long-term debt--Note C 369,999 524,999 --
Retirements of long-term debt and related premiums
and penalties -- Note C (390,357) (983,076) (59,454)
Fees and financing costs paid in connection with debt
refinancing -- Notes B and C (3,094) (20,277) --
Sale of Common Stock, $.01 par value -- Note B -- 385,444 --
Sale of Common Stock under stock option plan 2,326 2,189 --
Sale of Common Stock under warrants 133 -- --
(Decrease) increase in short-term borrowings (5,000) 5,000 --
Other (442) (300) (687)
----------- ----------- ------------
NET CASH USED IN FINANCING ACTIVITIES (26,435) (86,021) (60,141)
----------- ----------- ------------
Net decrease in cash and cash equivalents (993) (27,242) (5,704)
Cash and cash equivalents, beginning of period 3,673 30,915 36,619
----------- ----------- ------------
Cash and cash equivalents, end of period $ 2,680 $ 3,673 $ 30,915
=========== =========== ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 16
Payless Cashways, Inc. and subsidiary
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Foreign
(In thousands) Preferred Stock Common Stock Paid-in Currency Accumulated
$1.00 Par Value $.01 Par Value Capital Translation Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1991 $ 40,600 $ 66 $ 70,108 $ -- $ (83,743) $ 27,031
Net loss for the year (15,902) (15,902)
Changes in redemption value of Common
Stock subject to puts and calls--Note A (455) (455)
-------- ----- --------- ------ ----------- ----------
Balance at November 28, 1992 $ 40,600 $ 66 $ 70,108 $ -- $ (100,100) $ 10,674
Net loss for the year (36,159) (36,159)
Sale of Voting Common Stock--Note B 322 385,122 385,444
Sale of Voting Common Stock under stock
option plan 2 2,825 2,827
Reclass Common Stock subject to puts
and calls and warrants subject to
puts--Note A 5 24,520 24,525
Redefine classes of Common Stock--Note D -- --
-------- ----- --------- ------ ----------- ----------
Balance at November 27, 1993 $ 40,600 $ 395 $ 482,575 $ -- $ (136,259) $ 387,311
Net income for the year 44,889 44,889
Sale of Voting Common Stock under stock
option plan 3 3,337 3,340
Sale of Voting Common Stock under warrants -- 133 133
Tax benefit from stock option exercises 148 148
Restricted stock--Note E 1 133 134
Conversion of Non-Voting Class B Common
Stock to Voting Common Stock--Note D -- --
Foreign currency translation adjustment (90) (90)
-------- ----- --------- ------ ----------- ----------
Balance at November 26, 1994 $ 40,600 $ 399 $ 486,326 $ (90) $ (91,370) $ 435,865
======== ===== ========= ====== =========== ==========
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 17
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Payless Cashways, Inc., and its wholly-owned subsidiary, Somerville
Lumber and Supply Co., Inc. ("Somerville"), referred to collectively herein as
the "Company". The Company is a 49% investor in Total Home de Mexico, S.A. de
C.V., a joint venture with a Mexican company, Alfa, S.A. de C.V., which plans to
open stores in Mexico, the first of which opened in December 1994. The Company
accounts for this investment on the equity method. All significant intercompany
transactions and balances have been eliminated in the accompanying consolidated
financial statements. Certain reclassifications have been made to prior period
amounts to conform with the 1994 presentation.
LINE OF BUSINESS: The Company is engaged in only one line of business--the
retail sale of building materials and supplies.
MERCHANDISE INVENTORIES: Inventories are stated at the lower of cost
(approximately 81% at last-in, first-out method, and the remainder at first-in,
first-out method) or market. Had the first-in, first-out method been used for
all inventories, the carrying value of these inventories would have increased
approximately $23.3 million and $20.2 million at November 26, 1994, and November
27, 1993, respectively.
LAND, BUILDINGS AND EQUIPMENT: Land, buildings and equipment are stated on the
basis of cost. Provisions for depreciation of land improvements, buildings and
equipment are computed primarily by the straight-line method over the estimated
useful lives of the assets or the terms of the related leases, which range from
three to 39 years.
In July, 1993, two of the Company's retail facilities were destroyed by the
midwestern floods. The Company carries property, business interruption, and
extra-expense insurance coverages. The Company operated temporary locations to
service its customers until these facilities were rebuilt or replaced.
Settlement proceeds in excess of net book value of $2.8 million related to the
flood-damaged real estate, fixtures and equipment and the $3.1 million
reimbursement of lost profits have been reflected in the accompanying 1994
consolidated statements of operations as other income.
DEFERRED FINANCING COSTS: Deferred financing costs are being amortized over the
respective borrowing terms using the interest method.
FOREIGN CURRENCY TRANSLATION: Adjustments resulting from the currency
translation of the Mexican joint venture financial statements into U.S. dollars
as of the balance sheet date are reflected as a separate component of
shareholders' equity.
COST IN EXCESS OF NET ASSETS ACQUIRED: The cost in excess of the fair value of
net assets acquired (goodwill) is being amortized using the straight-line method
over 40 years. The Company measures any impairment of goodwill as the excess of
the carrying amount over the expected cash flow from operations during the
remaining amortization period.
COMMON STOCK SUBJECT TO PUTS AND CALLS AND WARRANTS SUBJECT TO PUTS: Prior to
March 15, 1993, certain shares of Common Stock and the warrants were subject to
redemption in specified events. Such shares and warrants were reported at their
redemption value (estimated fair value) and had been excluded from shareholders'
equity. In connection with the March 15, 1993, Common Stock issuance, put and
call features relating to certain shares of Common Stock terminated and such
shares have been reclassified as shareholders' equity. The warrants have been
reclassified as shareholders' equity because the Company will no longer be
compelled to offer to repurchase the warrants since it filed a registration
statement on September 8, 1993, covering the shares into which the warrants are
exercisable and intends to maintain the effectiveness of such registration
statement until November 1, 1996. During 1992, the Common Stock subject to puts
and calls was adjusted to reflect increases in the estimated redemption value of
approximately $455,000 with a corresponding charge to accumulated deficit.
<PAGE> 18
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
NET INCOME (LOSS) PER COMMON SHARE: Net income (loss) per common share has been
computed based on the weighted average number of common shares outstanding
during the period plus common stock equivalents, when dilutive, consisting of
certain stock options, warrants and shares subject to puts and calls (prior to
March 15, 1993), when applicable. For purposes of this computation, net income
(loss) was adjusted for dividend requirements on preferred stock, and changes in
the redemption value of both common stock subject to puts and calls and warrants
subject to puts (prior to March 15, 1993), when these items were dilutive.
INCOME TAXES: Effective December 1, 1991, the Company prospectively adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates applied to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, the
Company considers investments in debt instruments with original maturities of
three months or less to be cash equivalents.
During 1994, 1993 and 1992, federal and state income taxes paid, net of refunds,
were $32.2 million, $5.7 million and $4.2 million, respectively.
Cash paid for interest, net of interest capitalized, was $67.0 million, $302.2
million and $103.8 million during fiscal 1994, 1993 and 1992, respectively.
SALE OF RECEIVABLES: The Company sells its commercial credit accounts to a
third-party administrator. A substantial portion of the Company's commercial
credit sales are to remodelers and contractors. Under the agreement, the Company
pays a servicing fee and assumes the credit risk. At November 26, 1994, and
November 27, 1993, the outstanding balance of commercial credit accounts sold to
the third-party administrator was approximately $86.5 million and $71.9 million,
respectively. The Company has provided a reserve of $5.1 million at November 26,
1994, and $4.9 million at November 27, 1993, which is believed to adequately
cover its credit risk related to these accounts.
Under a third-party administrative servicing agreement for the Company's
private-label charge card program, charge card accounts are sold to the
administrator and the Company assumes no credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Based on the borrowing rates currently
available to the Company for debt issuances with similar terms and maturities,
the fair value of long-term debt including the current portion is approximately
$668 million at November 26, 1994. The Company believes the carrying amounts of
cash and cash equivalents, trade receivables, real estate held for sale, trade
accounts payable and accrued expenses are a reasonable estimate of their fair
value.
ACCOUNTING PERIOD: The Company's fiscal year ends on the last Saturday in
November. Fiscal years 1994, 1993 and 1992, consisted of 52 weeks each.
<PAGE> 19
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
NOTE B-RECAPITALIZATION PLAN
The Company developed and executed a recapitalization plan (the
"Recapitalization Plan") which consisted of a series of transactions, completed
during 1993, designed to increase shareholders' equity, reduce the Company's
debt and interest expense, improve the Company's access to capital markets and
improve the Company's operating and financial flexibility.
The transactions comprising the Recapitalization Plan were as follows:
(i) The initial public offering of 32,200,000 shares of Common Stock, which
was completed on March 15, 1993 for net proceeds of $385.4 million.
(ii) The repayment on March 15, 1993, of $175.8 million of indebtedness
outstanding under the Company's previously existing bank credit
agreement, the 1988 Credit Agreement.
(iii) The prepayment on March 16, 1993, of $50 million of indebtedness
outstanding under the Company's $226.6 million mortgage loan payable to
an insurance company.
(iv) The issuance of 9-1/8% senior subordinated notes due 2003, which was
completed on April 20, 1993, for the aggregate principal amount of $200
million.
(v) The repurchase on April 15 and 16, 1993, of $99.9 million aggregate
principal amount of the Company's 16-1/2% junior subordinated
debentures due August 1, 2008, and the redemption of the remaining
$291.1 million aggregate principal amount of the junior subordinated
debentures on July 30, 1993. (This resulted in an extraordinary charge
of approximately $15.1 million, net of tax, in the accompanying 1993
consolidated statement of operations.)
(vi) Borrowings on November 1, 1993, of $325 million under an amended and
restated bank credit agreement entered into by the Company and certain
banks, the 1993 Credit Agreement. The 1993 Credit Agreement also
provided for a revolving credit facility of $85 million which was used
to provide a portion of the funds necessary to complete the
Recapitalization Plan and which was used to finance the working capital
requirements of the Company in the ordinary course of business.
(vii) The redemption on November 1, 1993, of $332.5 million aggregate
principal amount of the Company's 14-1/2% senior subordinated
debentures due November 1, 2000. (This resulted in an extraordinary
charge of approximately $27.2 million, net of tax, in the accompanying
1993 consolidated statement of operations.)
<PAGE> 20
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
NOTE C--LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1994 1993
--------- ----------
1994 Credit Agreement, secured by certain
equipment and capital stock of a subsidiary,
variable interest rate, payable in varying amounts
through 1999 $345,000 $ --
1993 Credit Agreement, secured by certain real estate,
equipment and capital stock of a subsidiary,
variable interest rate, payable in varying amounts
through 2000 -- 325,000
Mortgage loan payable to insurance company, secured by
certain real estate, 10.99% to 11.21%, payable in
varying amounts through 2003 154,195 168,072
Senior subordinated notes, 9-1/8%, due 2003 173,655 200,000
Other senior debt, 10% to 12%, payable in varying
amounts through 2004 1,550 3,033
--------- ---------
674,400 696,105
Less portion classified as current liability (20,269) (55,978)
--------- ---------
$654,131 $640,127
========= =========
</TABLE>
On November 18, 1994, the Company entered into the 1994 Credit Agreement which
is a five-year revolving credit facility providing borrowings initially of up to
$420 million which replaced the 1993 Bank Credit Agreement and the 1994 Multi-
Draw Credit Agreement. The commitment for available borrowings is reduced every
six months beginning on June 15, 1995, with final maturity on November 18, 1999.
At November 26, 1994, there were borrowings of $345 million against the
agreement as well as standby letters of credit of $20.6 million. The Company
had $54.4 million available for borrowing under this agreement at the end of
fiscal 1994. The 1994 Credit Agreement is secured by substantially all of the
equipment of the Company and all capital stock of the Company's subsidiary. The
loans under the agreement bear interest at fluctuating rates of either (1) an
alternate base rate plus 0.0% to 0.5% per annum, fluctuating with the debt to
capitalization ratio, (8-1/2% at November 26, 1994) or (2) LIBOR plus 0.35% to
1.50% per annum, fluctuating with the debt to capitalization ratio, (6-5/8% at
November 26, 1994). In addition to the scheduled commitment reductions, 75% of
the proceeds of certain asset sales will further reduce the commitment for
available borrowings. The 1994 Credit Agreement contains a number of customary
covenants, including, but not limited to, a minimum net worth covenant, a
minimum interest coverage ratio, a maximum debt to capitalization ratio, and
limitations on capital expenditures and lease payments. The Company is also
prohibited from paying dividends on its common and preferred stock.
The 1993 Credit Agreement originally consisted of $325 million in term loans and
a revolving credit facility providing for borrowings of up to $85 million.
Indebtedness under this agreement was repaid on November 18, 1994, in connection
with the 1994 Credit Agreement, resulting in an extraordinary charge of
approximately $7.7 million, net of tax, in the accompanying 1994 consolidated
statement of operations.
<PAGE> 21
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
On April 20, 1993, as part of the Recapitalization Plan described in Note B, the
Company issued senior subordinated notes. The senior subordinated notes are
unsecured obligations, subordinated to substantially all indebtedness of the
Company, and mature on April 15, 2003. Interest is payable on April 15 and
October 15 of each year at 9-1/8% per annum. The senior subordinated notes are
callable after April 15, 1998, at 104.5625% face value declining ratably to par
on and after April 15, 2000. The senior subordinated notes contain certain
covenants that, among other things, limit the ability of the Company and its
subsidiaries to incur indebtedness, pay dividends, issue preferred stock of
subsidiaries, issue guarantees and pledges of subsidiaries, engage in
transactions with stockholders and affiliates, create payment restrictions
affecting subsidiaries and engage in mergers and consolidations.
During 1994, the Company had borrowed $25 million under the 1994 Multi-Draw
Credit Agreement to repurchase and retire $26.3 million aggregate principal
amount of the 9-1/8% senior subordinated notes resulting in an extraordinary
gain of approximately $.5 million, net of tax, in the accompanying 1994
consolidated statement of operations. The 1994 Multi-Draw Credit Agreement was
prepaid on November 16, 1994, in connection with the 1994 Credit Agreement.
The Company has a mortgage loan with an insurance company secured by certain
real estate. The Company made a $50 million mortgage loan prepayment on March
16, 1993, in connection with the Recapitalization Plan described in Note B
resulting in an extraordinary charge of approximately $1.2 million, net of tax,
in the accompanying 1993 consolidated statement of operations. The mortgage
loan is secured by land, land improvements and buildings having a net book value
of approximately $364.9 million at November 26, 1994.
The Company defeased certain industrial revenue bonds during fiscal 1988 by
placing government securities in an irrevocable trust. Such industrial revenue
bond debt is considered to be extinguished and does not appear as a liability in
the accompanying consolidated balance sheets. Bonds in the amount of $15.6
million are outstanding as of November 26, 1994.
Scheduled maturities of long-term debt, including sinking fund requirements,
are:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1995 $ 20,269
1996 34,592
1997 58,653
1998 70,529
1999 261,468
Thereafter 228,889
---------
$ 674,400
=========
</TABLE>
<PAGE> 22
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
Note D--Shareholders' Equity
In connection with the initial public offering described in Note B, the
Company's articles of incorporation were amended, among other things, to
redefine the classes of Common Stock, $.01 par value. Therefore, Class A Common
Stock (3,195,000 shares) became Voting Common Stock, Class B Common Stock
(425,000 shares) became Non-Voting Class B Common Stock and Class D Stock
(2,250,000 shares) became Non-Voting Class A Common Stock. The total number of
shares of all classes of Common Stock which the Company has the authority to
issue is 160,000,000, consisting of 150,000,000 shares of Voting Common Stock,
5,000,000 shares of Non-Voting Class A Common Stock and 5,000,000 shares of Non-
Voting Class B Common Stock. All classes of Common Stock are substantially
identical except for voting rights. Shares of Non-Voting Class A Common Stock
are convertible at the option of the holder, subject to certain restrictions,
into a like number of shares of Voting Common Stock. During 1994, 1,125,000
outstanding shares of Non-Voting Class B Common Stock were converted into a like
number of shares of Voting Common Stock under a similar right of conversion. In
the event of liquidation, all distributions on the Common Stock of the Company
are payable to all classes of Common Stock in a like manner.
Masco Capital, an affiliate of one of the Company's suppliers, owns 100% of the
Company's Cumulative Preferred Stock ("Preferred Stock"). The terms of the
Preferred Stock provide for dividends at an annual rate of eight percent until
2008 (at which time the rate increases) on a cumulative basis, whether or not
declared. At November 26, 1994, cumulative undeclared dividends on the
Preferred Stock were $26.5 million ($65.15 per share). Prior to August 1, 1994,
the Preferred Stock was convertible into Common Stock. Each share of Preferred
Stock is generally entitled to 5.9994 votes on all matters on which holders of
Common Stock are entitled to vote.
The Company has 332,000 warrants outstanding as of November 26, 1994. Each
warrant entitles the holder thereof, to purchase four shares of the Common
Stock of Payless at an exercise price of $11.11 per share, subject to
adjustment in certain events. The Company has filed a registration statement
covering the shares into which the warrants are exercisable and intends to
maintain the effectiveness of such registration statement until November 1,
1996.
The Payless Cashways 1992 Incentive Stock Program (the Program) has been
established to attract and retain outstanding individuals in certain key
positions. The Program provides for the grant of incentive stock options, non-
qualified stock options, stock appreciation rights, restricted stock awards and
performance units. All new grants after July 15, 1992, were under the Program.
The aggregate number of shares of Common Stock reserved for issuance under the
Program is equal to the sum of (1) the greater of (a) 3,500,000 shares of Common
Stock or (b) 5% of the sum of (i) the Common Stock outstanding at the end of any
fiscal year during the term of the Program and (ii) the Common Stock reserved
for issuance upon exercise or conversion of any options, warrants or Preferred
Stock outstanding at the end of any fiscal year during the term of the Program;
plus (2) any shares which remain available under the Plan (defined below) or
which are subject to options or awards outstanding on July 15, 1992, and which
expire, terminate or are cancelled after such date. The exercise price for any
incentive stock options will be at least 100% of the fair market value of the
Common Stock at the date of grant. The exercise price for any non-qualified
stock options will be at least 85% of the fair market value of the Common Stock
at the date of grant.
The Company has adopted an option plan for non-employee directors (the "Director
Option Plan"). Under the Director Option Plan, each non-employee director is
granted an option of $100,000 worth of the Company's Common Stock, valued on the
date on which the director is first elected, for an aggregate exercise price of
$100,000. In addition, each non-employee director will receive an option to
purchase 1,000 shares of Common Stock on the date immediately following the
Company's Annual Meeting so long as such non-employee director continues to
serve on the Company's Board of Directors. The exercise price for the annual
options will be the fair market value of the Company's Common Stock on such
anniversary date. Options granted under the Director Option Plan may be
exercised six months and one day after the grant date and expire on the earlier
of (a) 10 years after the date of grant, or (b) 1 year after the date on which
the director ceases to be a member of the Company's Board of Directors. An
aggregate of 350,000 shares of Common Stock are reserved for issuance under the
Director Option Plan.
The 1988 Payless Cashways, Inc. Employee Stock Plan (the Plan) provided for the
conversion of options to purchase shares of the predecessor company Common
Stock into options to purchase shares of the successor company Common Stock, and
for the granting of options for the purchase of up to 1,643,781 shares of Common
Stock and awards of up to approximately 183,000 shares of restricted stock.
One-third of the options were performance-based and two-thirds vested without
regard to performance tests. All unvested options under the Plan vested as of
March 15, 1993, with the initial public offering described at Note B. The
exercise price for options was the fair market value of the Company's Common
Stock on the date of grant. After adoption of the Program (defined above), no
further grants were made pursuant to the Plan.
<PAGE> 23
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
There were 33,600 shares of Restricted Stock, granted under the Program,
outstanding as of November 26, 1994. The shares of Restricted Stock are subject
to certain transfer restrictions and vest in February, 1997.
The following sets forth details of shares under options for all three plans:
<TABLE>
<CAPTION>
1992 Incentive 1988 Employee
Stock Program Stock Plan Director Option Plan
-------------------- -------------------- -------------------------
Number Average Number Average Number Average
Of Shares Price Of Shares Price Of Shares Price
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year 1992:
Options granted 10,881 $ 12.00 412,918 $ 12.31 -- $ --
Options exercised -- -- (47,921) 6.69 -- --
Options terminated or
cancelled -- -- (69,982) 11.93 -- --
---------- --------- ---------- ------- ---------- ---------
Options outstanding at
November 28, 1992 10,881 $ 12.00 2,527,528 $ 9.61 -- $ --
========== ========= ========== ======= ========== =========
Options exercisable at
November 28, 1992 3,920 $ 12.00 2,354,023 $ 9.40 -- $ --
========== ========= ========== ======= ========== =========
Fiscal Year 1993:
Options granted 1,440,048 $ 12.22 -- $ -- 48,692 $ 14.38
Options exercised (3,300) 12.00 (238,788) 9.00 -- --
Options terminated or
cancelled (45,580) 12.24 (35,419) 17.42 -- --
---------- --------- ---------- ------- ---------- ---------
Options outstanding at
November 27, 1993 1,402,049 $ 12.22 2,253,321 $ 9.55 48,692 $ 14.38
========== ========= ========== ======= ========== =========
Options exercisable at
November 27, 1993 88,838 $ 12.00 2,253,321 $ 9.55 48,692 $ 14.38
========== ========= ========== ======= ========== =========
Fiscal Year 1994:
Options granted 963,758 $ 14.60 -- $ -- 8,000 $ 15.88
Options exercised (8,356) 11.98 (283,495) 7.85 -- --
Options terminated or
cancelled (283,626) 12.67 (8,784) 11.34 -- --
---------- --------- ---------- ------- ---------- ---------
Options outstanding at
November 26, 1994 2,073,825 $ 13.26 1,961,042 $ 9.79 56,692 $ 14.59
========== ========= ========== ======= ========== =========
Options exercisable at
November 26, 1994 346,159 $ 12.18 1,961,042 $ 9.79 56,692 $ 14.59
========== ========= ========== ======= ========== =========
</TABLE>
<PAGE> 24
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
NOTE E-INCOME TAXES
Income taxes for the years ended November 26, 1994, and November 27, 1993, were
allocated to income before equity in loss of joint venture and extraordinary
item, and to the extraordinary item for early extinguishment of debt; see Note
C. For the year ended November 26, 1994, the income tax benefit allocated to
the extraordinary item was $4,829,000; the income tax expense allocated to
income before equity in loss of joint venture and extraordinary item was
$41,808,000. A credit of $148,000 to additional paid-in capital reflected the
tax effect of the excess tax deduction for employee stock options over the
expense recognized for financial reporting purposes. For the year ended
November 27, 1993, the income tax benefit allocated to the extraordinary item
was $18,267,000; the income tax expense allocated to income before extraordinary
item was $16,170,000.
Income taxes for the year ended November 28, 1992, were allocated to the loss
before the cumulative effect of change in accounting principle and to the
cumulative effect of adopting Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Post-retirement Benefits Other than Pensions";
see Note G. The income tax benefit allocated to the cumulative effect was
$3,556,000; the income tax expense allocated to the loss before the cumulative
effect of a change in accounting principle was $2,780,000.
Included in the Company's 1993 deferred income tax expense was a charge of $1.1
million to reflect the cumulative impact of the corporate income tax rate
changes enacted by the Omnibus Budget Reconciliation Act of 1993.
Income tax expense attributable to the income (loss) before equity in loss of
joint venture, extraordinary item and cumulative effect of change in accounting
principle consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
Currently payable
Federal $ 29,636 $ 6,045 $ 3,472
State 4,419 1,284 934
-------- -------- ---------
34,055 7,329 4,406
Deferred
Federal 7,288 8,311 (1,529)
State 465 530 (97)
-------- -------- ---------
7,753 8,841 (1,626)
-------- -------- ---------
$ 41,808 $ 16,170 $ 2,780
======== ======== =========
</TABLE>
The differences between actual income tax expense and the amount computed by
applying the statutory federal income tax rate to the income (loss) before
income taxes, equity in loss of joint venture, extraordinary item and cumulative
effect of a change in accounting principle, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
Federal statutory rate 35.0 % 34.0 % (34.0) %
State income taxes,
net of federal tax benefit 4.0 6.9 7.2
Amortization of goodwill 4.7 17.1 71.2
Permanent tax differences (.1) .7 15.6
Tax credits (.2) (1.2) (14.3)
Cumulative impact of corporate income
tax rate change -- 4.8 --
Other -- .3 (1.0)
------- -------- --------
43.4 % 62.6 % 44.7 %
======= ======== ========
</TABLE>
<PAGE> 25
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
The tax effects of temporary differences and tax credits that give rise to
significant portions of the deferred tax assets and deferred tax liabilities are
as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---------- ----------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 9,572 $ 9,399
Retirement, deferred compensation, restricted stock
and stock option plans 6,446 6,403
benefits 4,796 4,348
Vacation reserves 4,583 4,225
Reserves for bad debts 2,721 2,757
Tax credit carryforwards -- 5,924
Other 1,820 3,538
---------- ----------
Total deferred tax assets 29,938 36,594
Less valuation allowance -- --
---------- ----------
Net deferred tax assets 29,938 36,594
---------- ----------
Deferred tax liabilities:
Land, buildings and equipment (68,368) (67,969)
Acquisition fees (15,464) (15,464)
Inventory basis difference (5,248) (4,144)
Other (3,438) (3,844)
---------- ----------
Total deferred tax liabilities (92,518) (91,421)
---------- ----------
Net deferred tax liability $ (62,580) $ (54,827)
========== ==========
</TABLE>
NOTE F--PENSION PLANS
The Company has non-contributory defined benefit pension plans covering
substantially all full-time employees. Benefits under the plans are based on
years of service and an employee's average compensation. The Company's funding
policy is to contribute annually the amount actuarially determined to provide
the plan with sufficient assets to meet future benefit payment requirements.
Assets of the pension plans are maintained in trust funds.
The Company also has a supplemental pension plan covering certain of its
officers. The plan is an unfunded, non-contributory defined benefit pension
plan. Benefits under the plan are based on years of service, age and the
employee's average compensation.
<PAGE> 26
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
<TABLE>
<CAPTION>
Net pension cost included the following components:
(In thousands) 1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 4,623 $ 3,717 $ 3,267
Interest cost on projected benefit obligation 3,684 3,168 2,641
Actual return on plan assets (166) (3,245) (2,464)
Net amortization and deferral (2,295) 761 299
--------- --------- ---------
Net periodic pension cost $ 5,846 $ 4,401 $ 3,743
========= ========= =========
<\TABLE.
Significant assumptions used in accounting for defined benefit plans were as follows:
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 7.5% 7.5% 8.5%
Rate of increase in future compensation levels 5.0% 5.0% 6.0%
Expected long-term rate of return on plan assets 8.5% 8.5% 8.5%
The following table sets forth the plans' funded status and amounts recognized in the consolidated balance sheets:
</TABLE>
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------------------------- ----------------------------
Supplemental Supplemental
Pension Pension Pension Pension
Plans Plan Plans Plan
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation
Vested $ 34,849 $ 4,880 $ 29,358 $ 2,510
Non-vested 3,066 486 3,778 1,606
---------- --------- --------- ----------
Total 37,915 5,366 33,136 4,116
Increase in benefits due to estimated
future compensation increases 9,611 2,177 8,420 1,984
---------- --------- --------- ----------
Projected benefit obligation
for service rendered to date 47,526 7,543 41,556 6,100
Plan assets at fair value, primarily publicly traded
stocks and U.S. Government obligations 33,996 -- 33,126 --
---------- --------- --------- ----------
Plan assets less than
projected benefit obligation (13,530) (7,543) (8,430) (6,100)
Unrecognized net loss from past
experience different from that assumed 6,704 1,665 3,707 1,335
Unrecognized prior service cost 2,375 269 361 --
Additional minimum liability (1,587) -- -- --
---------- --------- --------- ----------
Accrued pension cost included
in other accrued expenses $ (6,038) $ (5,609) $ (4,362) $ (4,765)
========== ========= ========= ==========
</TABLE>
At November 26, 1994, an additional minimum liability of $1.6 million was
recorded to reflect the excess of the unfunded accumulated benefit obligation
over accrued pension costs for one of the pension plans. A corresponding asset
of $1.6 million is included in other assets in the accompanying consolidated
balance sheet at November 26, 1994. In January, 1995, the defined benefit
pension plans were merged into a single plan.
<PAGE> 27
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
In addition, the Company has sponsored several defined contribution plans.
Under the Payless Cashways, Inc. Employee Savings Plan, which covers
substantially all employees, the Company contributed an amount equal to a
percentage of the amount contributed by employees into the plan. The employees
of Somerville Lumber and Supply Co. are covered by a profit sharing plan for
which contributions are made at the discretion of the Somerville Board of
Directors and approval of the Company's Compensation Committee. The aggregate
contributions to all defined contribution plans were $2,679,000, $2,258,000, and
$2,773,000 in 1994, 1993 and 1992, respectively.
NOTE G--POST-RETIREMENT BENEFIT PLANS
The Company has certain unfunded post-retirement defined benefit plans that
provide health and life insurance benefits for retirees and eligible dependents.
The health plan is contributory and contains cost sharing features such as
deductibles and coinsurance.
Effective December 1, 1991, the Company changed its method of accounting for
post-retirement benefits other than pensions and adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-retirement
Benefits Other than Pensions." Under Statement 106, the cost of post-retirement
benefits other than pensions is recognized on an accrual basis as employees
perform services. The Company elected to recognize the December 1, 1991,
transition obligation as a one-time charge to earnings during the first quarter
of fiscal 1992. The cumulative effect of this change in accounting principle of
$6,902,000 (after reduction for income tax benefits of $3,556,000) is presented
in the accompanying 1992 consolidated statement of operations.
Net post-retirement benefit cost included the following components:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 923 $ 621 $ 594
Interest cost on accumulated post-retirement
benefit obligation 1,092 1,007 940
Amortization of unrecognized loss 48 -- --
------- ------- -------
Net periodic post-retirement benefit cost $ 2,063 $ 1,628 $ 1,534
======= ======= =======
</TABLE>
The following table sets forth the plans' funded status and amounts recognized
in the consolidated balance sheets:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
--------- --------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees and beneficiaries $ 9,830 $ 8,833
Fully eligible active plan participants 75 353
Other active plan participants 8,113 5,738
--------- --------
Total 18,318 14,924
Plan assets at fair value -- --
--------- --------
Accumulated post-retirement benefit obligation in excess of
plan assets 18,318 14,924
Unrecognized net loss from past experience different from
that assumed 3,684 2,502
Unrecognized prior service cost 932 --
--------- --------
Accrued post-retirement benefit cost included in other
non-current liabilities $ 13,702 $ 12,422
========= ========
</TABLE>
<PAGE> 28
Payless Cashways, Inc. and subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
Significant assumptions used in accounting for post-retirement benefit plans
were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Weighted average discount rate 7.5% 7.5% 8.5%
Rate of increase in future compensation levels 5.0% 5.0% 6.0%
Health-care cost trend rate 8.5% 11.2% 13.0%
</TABLE>
In fiscal years 1994, 1993 and 1992, the health-care cost trend rate was assumed
to decrease gradually to 5.9% by the year 2001 and remain at that level
thereafter. The effect of a 1.0% annual increase in these assumed health-care
cost trend rates would increase the November 26, 1994, accumulated post-
retirement benefit obligation by $1,021,000 and the aggregate of the service and
interest cost components of net periodic post-retirement benefit cost for the
fiscal year ended November 26, 1994, by $67,000.
NOTE H--LEASES
The Company leases certain stores and other facilities under non-cancellable
operating leases. Aggregate minimum future rentals under non-cancellable
operating leases for the next five years are: 1995-- $19,038,000; 1996 --
$17,927,000; 1997 -- $13,465,000; 1998 -- $13,217,000; 1999 - $12,871,000;
thereafter -- $65,533,000. Rental expense under operating leases was
$23,912,000 for 1994, $20,577,000 for 1993, and $19,600,000 for 1992.
NOTE I--SPECIAL CHARGES
Special charges reflecting costs of $4.0 million associated with the elimination
of a layer from the Company's field management organization in early 1994 are
included in the accompanying statement of operations for fiscal 1993.
Special charges reflecting fees and expenses of $6.5 million incurred in
connection with the Company's withdrawn 1992 recapitalization plan are included
in the accompanying statement of operations for fiscal 1992.
<PAGE> 29
Payless Cashways, Inc. and subsidiary
FIVE-YEAR OPERATIONAL SUMMARY
<TABLE>
<CAPTION>
(Average sales per facility, number
of customers, gross square feet and
retail square feet are in thousands) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of retail facilities 202 196 195 195 195
Average sales per facility $ 13,716 $ 13,284 $ 12,800 $ 12,242 $ 11,413
Number of customers 60,812 60,678 62,641 62,603 59,649
Average sales per customer $ 44.77 $ 42.69 $ 39.84 $ 38.13 $ 37.31
Number of employees 18,406 18,093 17,784 17,475 17,310
Average sales per employee $ 147,916 $ 143,167 $ 140,346 $ 136,609 $ 128,570
Gross square feet (total) 18,730 18,095 18,013 18,054 18,000
Retail square feet (inside) 6,223 5,955 5,784 5,747 5,723
Sales per retail square foot $ 437.50 $ 434.98 $ 431.52 $ 415.39 $ 388.88
Percent increase in comparable-
store sales on a 52-week basis 3.3% 4.1% 6.4% 5.5% 10.1%
<PAGE> 30
Payless Cashways, Inc. and subsidiary
FIVE-YEAR FINANCIAL SUMMARY
(In thousands, except per share amounts,
percentages and ratios) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales and other income (a) $ 2,733,182 $ 2,605,978 $ 2,500,364 $ 2,391,830 $ 2,229,375
Cost of merchandise sold 1,918,674 1,824,663 1,739,396 1,663,508 1,551,133
Selling, general and administrative 594,024 570,016 551,479 531,115 491,716
Depreciation and amortization 58,692 56,213 55,429 57,291 58,291
Interest 65,571 125,247 153,780 155,066 155,056
Special charges (b) -- 4,000 6,500 -- --
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes 96,221 25,839 (6,220) (15,150) (26,821)
Federal and state income taxes
(benefit) 41,808 16,170 2,780 (1,891) (5,576)
------------ ------------ ------------ ------------ ------------
Income (loss) before equity in loss of
joint venture, extraordinary
item and cumulative effect of
change in accounting principle 54,413 9,669 (9,000) (13,259) (21,245)
Equity in loss of joint venture (2,281) -- -- -- --
Extraordinary item (c) (7,243) (45,828) -- -- 223
Cumulative effect on prior years
of change in accounting principle (d) -- -- (6,902) -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 44,889 $ (36,159) $ (15,902) $ (13,259) $ (21,022)
============ ============ ============ ============ ============
Income (loss) per common share before
extraordinary item and cumulative
effect of change in accounting principle $ 1.17 $ .16 $ (2.10) $ (2.63) $ (3.98)
Weighted average common and dilutive
common equivalent shares outstanding 40,257 30,514 6,571 6,571 6,571
Current ratio 1.45 1.25 1.21 1.19 1.25
Working capital $ 139,128 $ 85,142 $ 74,911 $ 65,570 $ 81,882
Total assets $ 1,495,882 $ 1,458,481 $ 1,466,068 $ 1,481,889 $ 1,496,939
Long-term debt $ 654,131 $ 640,127 $ 986,155 $ 998,047 $ 1,017,118
Common Stock subject to puts and calls $ -- $ -- $ 6,283 $ 5,621 $ 8,841
Shareholders' equity $ 435,865 $ 387,311 $ 10,674 $ 27,031 $ 36,840
Capital expenditures $ 81,906 $ 49,982 $ 36,612 $ 41,022 $ 39,915
Income from operations before
depreciation and amortization (e) $ 220,484 $ 207,299 $ 202,989 $ 197,207 $ 186,526
</TABLE>
(a) Net sales and other income include gains of $5.9 million in 1994 related to
settlements of 1993 flood losses.
(b) Special charges for 1993 consisted of costs associated with the elimination
of a layer from the Company's field management organization. Special
charges for 1992 consisted of fees and expenses incurred in connection with
the Company's withdrawn recapitalization plan.
(c) Represents gains (losses) on early extinguishment of debt.
(d) Effective December 1, 1991, the Company changed its method of accounting
for post-retirement benefits other than pensions.
(e) Income from operations before depreciation and amortization is utilized by
the Company as a measure for managing cash flow in its day-to-day
operations and in financial covenants required to be maintained under the
1994 Credit Agreement relating to interest coverage and net worth.
<PAGE> 1
Exhibit 23.1
AUDITORS' CONSENT
-----------------
The Board of Directors
Payless Cashways, Inc.:
We consent to incorporation by reference in the registration statements on Form
S-8 and Form S-3 of Payless Cashways, Inc. of our audit reports dated January 9,
1995, relating to the consolidated balance sheets of Payless Cashways, Inc. and
subsidiary as of November 26, 1994 and November 27, 1993 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the fiscal years in the three-year period ended November 26, 1994, and
the related schedule, which reports appear in the November 26, 1994 annual
report on Form 10-K of Payless Cashways, Inc. Our reports refer to a change in
the accounting for post-retirement benefits other than pensions in fiscal 1992.
s/KPMG Peat Marwick LLP
Kansas City, Missouri
February 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NOVEMBER
26, 1994, FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-26-1994
<PERIOD-END> NOV-26-1994
<CASH> 2680
<SECURITIES> 0
<RECEIVABLES> 6003
<ALLOWANCES> 0
<INVENTORY> 406066
<CURRENT-ASSETS> 25572
<PP&E> 810825
<DEPRECIATION> 237527
<TOTAL-ASSETS> 1495882
<CURRENT-LIABILITIES> 310742
<BONDS> 654131
<COMMON> 399
0
40600
<OTHER-SE> 394866
<TOTAL-LIABILITY-AND-EQUITY> 1495882
<SALES> 2722539
<TOTAL-REVENUES> 2733182
<CGS> 1918674
<TOTAL-COSTS> 1918674
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65571
<INCOME-PRETAX> 96221
<INCOME-TAX> 41808
<INCOME-CONTINUING> 52132
<DISCONTINUED> 0
<EXTRAORDINARY> (7243)
<CHANGES> 0
<NET-INCOME> 44889
<EPS-PRIMARY> .99
<EPS-DILUTED> 0
</TABLE>
